Industrial Productivity Training Manual Rutgers | Inventory | Screw


Version 2.0 
Written by: Dr. Michael R. Muller - Director, Don Kasten

©2006 Rutgers, the State University of New Jersey

Table of Contents
INTRODUCTION ..............................................................................2 PRODUCTIVITY TOOLBOX ..............................................................5 Toolbox Introduction.....................................................................6 Productivity Metrics......................................................................9 Cost of Labor..............................................................................10 Space Optimization .......................................................................11 Productivity Questions...................................................................14 CONCEPTS FOR PRODUCTIVITY ENHANCEMENT, PART I INCREASING PIECES/PERSON/HOUR .............................................19 QUICK CHANGES......................................................................20 AR No. 1 Decrease Die Change-Out & Start-Up Times...................26 AR No. 2 Use Fixtures to Reduce Lathe Set-up Times....................32 AR No. 3 Install a Rotating Nozzle Carousel to Reduce Set-Up Times.34 AR No. 4 Employ Modular Jigs to Reduce Process Set-up Times.......36 BOTTLENECK MITIGATION.........................................................39 AR No. 5 Add Machine Operators to Reduce Production Bottleneck....41 AR No. 6 Install Refrigeration System to Cool Product...................45 AR No. 7 Replace Old Lathe With New Automatic Multi-station Tool..47 DEFECT REDUCTION .................................................................49 AR No. 8 Reduce Defects By Reducing Bottle Tipping...................53 AR No. 9 Develop Standard Procedures to Improve Internal Yields ....63 PREVENTIVE PREDICTIVE MAINTENANCE ....................................67 AR No. 10 Eliminate Shutdowns of Controls Due To Overheating ......69 AR No. 11 Begin a Predictive/Preventive Maintenance Program.........73 LABOR OPTIMIZATION...............................................................79 AR No. 12 Install Automated Glassware Packing Equipment.............81 AR No. 13 Install Magazines Between Machines to Reduce Costs.......87 AR No. 14 Cross-Train Existing Personnel to Avoid Lost Time .........90 CONCEPTS FOR PRODUCTIVITY ENHANCEMENT, PART II DECREASING COST/PIECE ..............................................................93 SCHEDULING ...........................................................................94 AR No. 15 Optimize Lot Sizes to Reduce Inventory Carrying Costs.....97 AR No. 16 Add a Second Production Shift..................................99 PURCHASING...........................................................................101 AR No. 17 Schedule Wood Chip Deliveries According to Demand......103 AR No. 18 Purchase Materials from Supplier in Customized Packing...105 AR No. 19 Install Pellet Silo and Receive Bulk Delivery Discount.......107 BURDEN ANALYSIS...................................................................109 AR No. 20 Condense Operation Into One Building ........................111 AR No. 21 Demolish Building to Reduce Tax & Insurance Fees.........114 INVENTORY .............................................................................117 AR No. 22 Eliminate Old Stock and Modify Inventory Control ..........120 FLOOR LAYOUT ........................................................................127 AR No. 23 Clear and Rent an Existing Warehouse.........................129 AR No. 24 Re-arrange Equipment Layout to Reduce Labor Costs.......131 AR No. 25 Re-arrange Equipment Layout to Reduce Handling Costs...134

Background As part of the Climatewise program, Professor Muller and other technical staff of the OIPEA have been involved with adding an energy and waste component to the PICOS supplier development program run by General Motors. As part of these activities, the GM people observed an IAC style assessment in New Jersey. Professor Muller then spent a week in Charlotte observing a PICOS assessment. During this information exchange it became clear that IAC assessments could be more effective if additional efforts were put into direct productivity issues. Recognizing that we have had training courses for center directors on energy and waste, it was concluded that an additional course should be assembled on productivity.

Evaluation of the GM PICOS™ Assessment Program The PICOS program is a long running industrial assessment service provided by GM for their suppliers based carefully on the Toyota Production System. The goal of the program is to improve the productivity of suppliers and pass the savings on to GM, which has a policy of continually paying less for a product each year. They are proud that they never tolerate price increases. The workshops, as they are called, use a team of normally two Supplier Development Engineers who are in the plant for 3.5 days. These are people with a variety of backgrounds and for the most part are not engineers. They make some suggestions themselves, but rely mostly on working groups of plant personnel to come up with cost saving ideas. Implementation of good ideas is expected to be immediate. Layout changes, for example, are often accomplished while the PICOS team is still there. Until recently, staff in the PICOS program did not concern themselves with waste or energy, but focused entirely on productivity issues. We can learn a great deal from the general approaches they use, but proprietary concerns will prohibit us from adopting any of their practices directly.


Additionally. by showing the large impact of some of these recommendations. it is hoped that director's themselves will be motivated to develop their own novel tools and fixes. The goal of the training is to provide directors with several tools which they can apply directly. 3 .Goals and Extent of the training program We hope to provide some background material. but concentrate on a number of worked examples of various kinds of productivity recommendations.

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Burden/overhead e. Inventory d. Frequently if an action does one it also does the other. 2.Toolbox Introduction The Toolbox is intended to supply you with a method of arriving at the necessary metrics which are required to write up and present Assessment Recommendations for Productivity. Quick Changes d. Defect Reduction c. The principal metrics which are needed for ARs are: 1. Usually these can be thought of as the costs or values of those things which go to make up Cost/Piece or Pieces/Person/Hour. Generally the type of productivity AR which can be recommended on a one day visit can be classified as something that Increases Pieces/Person/Hour or Decreases Cost/Piece. (Sales Price/Piece) minus (Cost/Piece) 4. Overhead - 6. unskilled non-union Also like to know Fringe Cost of Labor. Bottleneck Mitigation b. Cost of Inventory Carrying Cost Cost of Raw Material 3. Purchasing b. Scheduling Whether defect reduction increases pieces/person/hour or decreases cost/piece is somewhat arbitrary. Increases Pieces/Person/Hour a. Labor Costs Skilled union. Profit - 6 . Preventive/Predictive Maintenance Decreases Cost/Piece a. Includes energy and waste. Floor Layout c. We hope you will find them possible to produce during a one day audit and that the manufacturer will find them sufficiently rewarding to implement. In our presentation we further break these categories down to help you identify the major concepts which allow the creation of Assessment Recommendations. unskilled union Skilled non-union. Cost Per Piece 5. Labor Optimization e. Cost of Space Warehouse Manufacturing Office (Overhead+Labor+Materials)Cost/Piece Cost of virtually everything besides direct raw material and direct labor.

number of employees.. SECOND TRY 2. even if not exact. sales figures. The order of magnitude of the numbers should be correct under this approach and should "sell" the idea. An important task early in the assessment process is the estimation of 7 . but we think we can present an approach which both you and the manufacturer will find acceptable.At first glance you might conclude that these are proprietary numbers which a manufacturer may be unwilling to tell anyone outside (or even inside the company). will/should motivate the company to action. We also recommend that you include these metric values and assumptions in the introductory section of your reports (similar to or along with Plant Background summary) so that all values used to make the productivity calculations are readily apparent to the manufacturer. Use the PRODUCTIVITY METRICS sheet to make sure nothing is forgotten. This sheet has blanks for the information desired but contains (in parentheses) assumed values for many of the metrics which should be estimated for your part of the country. It will also allow the IAC to provide Productivity ARs which are reasonable and. Again have the PRODUCTIVITY METRICS sheet with you as you ask for the information. This approach allows the manufacturer to keep the information which he deems most private from appearing. FIRST TRY 1. and other facts about their manufacturing organization that we have always requested before the performance of an Industrial Assessment. If the necessary numbers are denied to you during this opening interview then present the PRODUCTIVITY METRICS sheet which is prepared before you ever enter the plant. Information in this section is used throughout the report when estimating material. or productivity cost savings opportunities. labor. FINAL TRY 3. The information was provided by facility personnel or is based on regional averages. During the initial contact and follow up before the visit get company personnel to provide the numbers needed at the same time they are supplying energy consumption numbers. If the numbers were not all forthcoming before your arrival try to get company personnel to provide them during the opening interview. Get the plant personnel to commit to the reasonableness of the numbers or if they find your numbers unacceptable to give an alternative value which you can use in your productivity enhancement ARs.

An example is shown in the pie chart below.the manufacturer’s relative costs of operation. so help from plant personnel will always be needed. Energy Direct Labor Waste Profit Materials Cost Overhead Cost per Part = Gross Sales / # of Pieces It is probably apparent that there are still some things such as Cost or Value of Inventory which can't be judged without knowing the cost per piece and how many pieces are in inventory. 8 . This is a critical step which will allow your team to focus on those areas which offer the most opportunities. Additional useful information for labor cost and the cost of space is given on the following pages. Gathering the information on the PRODUCTIVITY METRICS sheet will allow this.

94/man-hour) (Items above in parentheses indicate total cost to the company.PRODUCTIVITY METRICS SHEET Labor Costs: Type of Labor Production Worker: Skilled Technician: Engineering (contracted): Engineering (in-house): Actual ________/hr ________/hr ________/hr ________/hr Assumed ($19. _____ ) Profit Margin: Cost per Piece to Produce: _____% (100%) _____% (10%) $______/piece Inventory and Floor space: Value of Floor space: Inventory Carrying Cost: Raw Material Inventory: Work-In-Progress Inventory: Finished Goods Inventory: Quantity = ______ Quantity = ______ Quantity = ______ _______/ft2/yr ($5.47/man-hour) ($25.00/ft2/yr) _____% (15%) Value = ______ Value = ______ Value = ______ 9 .50/hcf. including 35% fringe) Fringe Rate: ______% (35%) Raw Material Costs: Yearly Usage Material/Resource Unit Price Water Treatment Water Usage: /hcf ($2. 1 hcf = 100 ft 3) Production Information: Overhead: ( includes _____ . _____ .96/man-hour) ($100/engineer-hour) ($38. _____ .

20 $194.00 $19.60 $327.70 $24.10 $37.80 $23.Table 1: Cost of Labor 1 Basic Rate Incl.40 $24.35 $30.65 $44.00 $190.60 $25.60 $243. Ordinary Painters.35 $28.65 $19.30 $26.50 $37.55 $41.45 $31.20 $36.80 $313.40 $388.55 $48.20 $343.60 $15.60 $254.40 $259.60 $184.95 $23.35 $50.20 $326. Means Co.20 $172.55 $19.40 $382. R.50 $23.15 $42.20 $213.40 $196.80 $187.60 $197.40 $158.10 $22.00 $289.60 $212.35 $27. Equipment Operators. 15th Edition.80 $305.65 $18.20 $148.60 $352.40 $21.20 1Means Repair & Remodeling Cost Data. Crane or Shovel Equipment Operators.60 $256.60 $335.20 $41.60 $356.50 $36. Composition Roofers.80 $310.30 $48.85 $38.60 $293.40 $156. Heavy Welders. Structural Steel Paper Hangers Pile Drivers Plasterers Plaster Helpers Plumbers Rodmen (Reinforcing) Roofers.50 over trade) Foreman Avg.60 $212..60 $314.75 $25.15 $26.90 $28.20 $166.80 $242.00 $197. Light Equip.75 $39.65 $40.25 $36.00 $258.05 $24.60 $38.95 $30.00 $290.40 $328.60 $355.25 $27.25 $19.60 $186.00 over trade) Common Building Laborers Asbestos Workers Boilermakers Bricklayers Bricklayer Helpers Carpenters Cement Finishers Electricians Equipment Operators.80 $23.85 $44.S.60 $306. Medium Equip.40 $20.40 $19. outside ($2.40 $189.30 $19.40 $23.20 $23.40 $266.20 $152.80 $258.10 $31.70 $26.95 $44.00 $26.00 $203.00 $326. 10 .05 $37.50 $25.55 $33.80 $177.45 $32.40 $186.60 $180.00 $152.20 $40.80 $356.20 $357.70 $26.40 $197. Tile and Slate Roofer Helpers. inside ($0.20 $200.40 $385.00 $207.80 $122. Fringes Hourly Daily $24.80 $320. Equipment Operators.05 $47.00 $303.15 $328.00 $312.80 $218.50 $24.65 $25.00 $50.30 $32.40 $211..20 $322.30 $24.30 $27.00 $226.40 $172.00 $154.00 Trade Skilled Workers Average (35 Trades) Helpers Average (5 Trades) Foreman Avg.00 $357. Light Truck Drivers.20 $191.90 $40. Master Mechanics Glaziers Lathers Marble Setters Millwrights Painters.65 $42.75 $32.80 $249.75 $28.40 $300.00 $215.00 $404.85 $32.95 $38.80 $201.35 $23.30 $41.20 $39.60 $39.75 $40. Composition Sheet Metal Workers Sprinkler Installers Steamfitters or Pipe Fitters Stone Masons Structural Steel Workers Tile Layers (Floor) Tile Layer Helpers Truck Drivers.45 $44. Structural Steel Wrecking Rate w/ Overhead and Profit Hourly Daily $41.80 $404.00 $220.80 $179.20 $224.95 $44.95 $23.20 $342..35 $40.55 $21.80 $297.80 $226.10 $22.40 $332.00 $44.00 $192.50 $19.20 $157. Oilers Equipment Operators.40 $223. Inc.00 $155.

other possible savings opportunities which should be considered include: reduced or avoided operating costs for the space (lighting. etc. HVAC. In addition to the quantities listed in the tables. Some companies who own the space they occupy do not view it as having significant value.). unused buildings are allowed to deteriorate and diminish in value.Space Optimization The value of space is an important resource that is sometimes overlooked in manufacturing facilities visited by the IACs. Four basic options can be explored in an effort to improve the return from presently unoptimized space: • Optimize existing floor layout and: lease excess space to outside interests (see AR#24) reduce leased space requirements (see AR#21) avoid new construction for future expansions • Demolish dilapidated space to reduce tax and insurance expenses (see AR#22) Examples of cost savings calculations for the above opportunities are included in this manual in the noted AR write-ups. and reduced transportation costs (if traveling between two sites can be eliminated by consolidating operations). and dilapidated buildings are left standing (resulting in higher tax and insurance costs). A result is that the operations are expanded into all available space in an unoptimized manner. 11 . Tables 2 and 3 can be used to estimate cost benefits for space related opportunities. Potentially valuable floor space is used for equipment graveyards or storage of outdated products.

50-4.00 $37.00 $58.00 $39.50 $3.25-3.00 $35.000 sf and up 0 to 20.00 $25.000 sf and up 0 to 20.00-32.25-3.00-55.000 sf 60.000-60.50-3.60 n/a n/a n/a $3.50 $2.00 $3.00 $22.25-4.00-60.25 $3.000 sf 60.000 sf 20.15-3.00 $3.00 $45.00-35.65 $3.000 sf 20.000 sf 60.00 $3.25 $2.25 n/a n/a n/a $3.50-3. Society of Industrial and Office REALTORS and Laudauer Associates Inc.000-60.00 $3.00 $30.00-37.75-4.00-34.00 $30.00-45.000 sf 60.00 $14.00-7.40 $4.00-28.00 $25.75-4.75 $4.00 $2.000 sf 20.00-45.000 sf 60.00 $23.00 $2.80-3.00-38.00 $21.25 $3.00-27.000-60.25-2.50 n/a n/a n/a $3.000 sf 20.00-50.75 $3.00-3.00-4.000 sf 20.000-60.00-40.25-5.40 $4.25-5.00 $17.75 $4.60 $3.00-30.00-52.30-4.00 $30.75-6.90-3.000 sf 20.00-43.00 $35.00-4.00-29.00-41.16-5.00 $20.60 $3.00-60.00-6.52-7.00 $5.00 $3.50 $3.75-6.000-60.75-4.00 $2.00-28.00 $30.00 $25.00-9.00-60.00-30.00 $3.00 $3.25-3.00 $2.60-3.50 $3.00 n/a n/a n/a $30.20-4.00 $39.00-37.00 $40.00-21.75-4.00 $23.000-60.75 $3.50-17.000 sf and up 0 to 20.50 Moderate shortage Moderate shortage Moderate shortage Moderate shortage Balanced market Substantial shortage Moderate shortage Moderate shortage Substantial shortage Moderate shortage Moderate shortage Substantial shortage Substantial shortage Moderate shortage Moderate shortage Moderate shortage Moderate shortage Moderate shortage Moderate shortage Balanced market Moderate oversupply Substantial shortage Substantial shortage Substantial shortage Moderate shortage Moderate shortage Balanced market Balanced market Moderate shortage Moderate shortage Location Atlanta Size 0 to 20.00-21.25 $2.000 sf 20..50 $3.000 sf and up 0 to 20.00 $62.00 $42.15-3.75-4.00-21.00-80.25 $4.00 n/a n/a n/a $30.00 $25.00-26.000 sf 60.000 sf and up Boston Chicago Dallas Denver Los Angeles New York Orlando Phoenix Washington D.000 sf and up 0 to 20.00 $25.000 sf 60.00 $35.00-40.00 $48.00-24.50 $2.25 $23.50-6.00 $2.00-63.50 $27.000-60.00 $30.75-4.000 sf and up 0 to 20.00-22. 21996 Comparative Statistics of Industrial and Office Real Estate Markets.00 $25.00 $3.00-4.000 sf 60.50-3.C.50-4.00 $5.60-3.50 $2.50 $3.25 $12.000 sf 60.50-3.000 sf and up 0 to 20.00 $25.00 $5.50 $2.00-23.00-35.00 $4.00-50.000 sf 60.00 $57.50-4.00 $26.50-26.75-4. phone(202) 737-1150 12 .00 $20.000 sf 20.00 $25.00-45.00-18.00 $2.00-35.00 $20.00-35.00 $36.00-27.00-50.80 $4.00 n/a n/a n/a $27.000-60.00 $21.000 sf and up 0 to 20.00 $33.00-6.50 $2.90 $3.00-53.00 $20.00-40.40 $4.25-5.25-3.50 $2.000-60.00-35.000-60.00-30.00 $35.75-3.00-40.00 $20.00-24.000 sf and up 0 to 20.50 $3.95-4.90-3.50-4.00-5.000 sf 20.Table 2: Value of Space 2 Sale Prices ($/ft 2 ) Lease Prices ($/ft 2 /yr) Central Central Vacancy City Suburban City Suburban Indicators $22.000 sf 20.90-3.60 $3.00-70.00 $17.00 $32.00-2.00-48.

03 $0.75 $1.10 $0.03 $2.85 $0.10 $0.21 $0.08 $0.10 $0.70 $0.14 $0.35 $1.Table 3: Cost of Maintaining Space 3 Location Atlanta Boston Chicago Dallas Denver Los Angeles New York Orlando Phoenix Washington.23 $0.03 $0.50 $3.20 $0.78 $2.87 $1.35 n/a $0.35 $1.12 $0.55 $0.40 $2.25 $0.45 $1.15 n/a $0.30 $0.75 $1.93 $1.60 $0..61 $0.20 $0.07 $0.25 $0. D.10 $0.05 $0.C.10 $0.60 $1.20 $0.88 $1. Region Central City Suburban Central City Suburban Central City Suburban Central City Suburban Central City Suburban Central City Suburban Central City Suburban Central City Suburban Central City Suburban Central City Suburban ($/ft 2 /yr) Real Insurance Structural Common Estate (Fire and & Roof Area Total Taxes Liability) Maint.15 $0.55 $0.75 $1.12 $0.07 $0. phone(202) 737-1150 13 .20 $0.10 $0.05 $0.15 $0.33 $1.10 $0.10 $0.41 n/a $0.48 $0. Cost $0. Society of Industrial and Office REALTORS and Laudauer Associates Inc.84 $1.25 $0.10 $0.50 $0.10 $0.15 $0.08 n/a $0.60 $0.15 $0.23 $0.80 $1.10 $0.00 $0.30 $0.40 $1.16 $3.99 n/a $0.15 $1.30 31996 Comparative Statistics of Industrial and Office Real Estate Markets.08 $0.10 $0. Maint.85 $0.12 $0.50 $0.15 $0.15 $0.36 $0.75 $0.35 $0.20 $0.20 $0.15 $0.07 $1.35 $0.50 $0.08 $0.25 $0.25 $0.93 $0.35 $0.07 $0.

extra equipment or processes--i.)? •What causes each type of defect? •Are in-process and/or finished goods inventories built up due to potential defect problems in the production process (to ensure that the customer gets the products on time)? If so. finished goods)? •What is the lead time of the product/process? ("product" could also be object for the next operation) Increasing Pieces/Person/Hour Bottleneck Mitigation •How has the operation changed over time? (product. equipment. can you sell it? •Do you ever run overtime to meet production goals or compensate for defective batches? (related costs) •Do you have any plans for expansion? •Average value and quantity of each type of inventory (raw materials. The question list should accompany you to the plant and be used as reminders both in the sense of what to look for and what information to seek to complete an AR. material.e. what percent of existing inventory is considered excess? What is the value and quantity of overstocked goods in inventory? •Do standardized procedures exist for the processes where defects most often occur? •Does one machine operator produce significantly fewer defects than others? 14 . purchased components.Productivity Questions One more useful component of the Toolbox is a set of questions which can be asked (where they are applicable) to determine the likelihood of producing particular Productivity Enhancement ARs. procedure) •What is the optimal rate of this process/procedure? •Why is this process/procedure the bottleneck? Defect Reduction •What percentage of products are inspected? •In what stages/locations of the process do the most rejects (or clean-up) occur? •What are the most common types of defects? •How much does each type of defect or clean-up cost per year (labor. General •If you can make more product. regrind-etc. in-process products. lost production time..

that operator’s expertise should be used to develop standardized operating procedures for training less effective personnel.) Quick Changes •How much time does it typically take to setup XYZ machine? •Do you need to do any adjustment to the machine? •Do you need to use any gauges or other measurement devices to adjust the machine? •How many different tools do you need for the setup of XYZ machine? •Can the setup be performed by the operator or is a specialist needed? •Do you need a period of time when you run pieces which are used just to get rid of initial problems? •Do you need to idle the machine for a while to bring it up to speed or to a proper temperature? •How do you clamp pieces to the machine? Do you use the same fasteners in all the cases? Labor Optimization •What percentage of the cost of production is labor? Direct / Indirect? •What is the pay scale? •What is the pay rate premium for late shifts? •Do you run overtime due to the lack of skilled personnel? •What is the cost of overtime? •Is this a union shop? •Do you ever work overtime to meet production goals? Why? •Are you lacking labor in a particular skill? •Are you keeping up with preventative maintenance? Preventive/Predictive Maintenance •Are there shutdowns of the production process? •Are these shutdowns unscheduled? •What are the duration and frequencies of these shutdowns? •What are the reasons for the unscheduled stoppages? •What is the cost/hour of production downtime? 15 .(If so.

why is that excess inventory needed? Burden •Is new construction planned? How much and why? •Do you manufacture or store goods in any other building nearby? •Would you be able or want to have a rent paying tenant occupying any portion of your building complex? •Do you place any value on equipment or facilities which seem to be "junk"? (If not. identify these operations. such as cleaning. What would be the right sequencing to eliminate these operations? •Do you have large size batch operations? •What is the company's operating schedule (including vacations. 16 .? If the answer is YES. number of shifts. or demolish dilapidated facilities) Scheduling •Do you have operations where different sequencing of jobs would eliminate some non-value added operations. setups etc. it may be economical to scrap junk and use the freed space. lease or own the facility (or another)? (cost $/ft2 /yr) •How do you account for the cost (or value) of space? (cost $/ft2 /yr) •How many different products do you make? Inventory •How much floor space is used for each type of inventory? What is the assigned value (if any) of that floor space ($/ft2/yr)? •If it is determined that there is excess inventory of some type. overtime)? •Ask questions about ratio indicators.Decreasing Cost/Piece Purchasing •How often are raw material deliveries received? •Are raw materials delivered based on the supplier’s convenience or planned needs at your facility? •How long do raw materials or purchased components remain at your facility before they are used? Floor Layout •Do you rent.

Second ratio is speed of the process (rate of production) to sales rate. Third ratio is number of pieces to number of work stations or operators in a line segment. why? •Do you experience multiple handling or multiple inspection? 17 . •Identify processes or operations which you feel are more costly than they should be. •Do you use push or pull system in your manufacturing process? •If overhead cost is too high.First ratio is production lead time to actual value added time to manufacture a part.

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Internal setup is the time used for setup while the process cannot continue. one must study the shop floor conditions in great detail. External setup time is the time used to prepare machines and tooling for the next operation without stopping the process. The second step is to convert as many internal tasks as possible into external. The third step involves the streamlining of all setups.Quick Changes Introduction The preparation of any machine to perform a specific task or operation is called setup time. although the estimated reductions might be less than if an extended investigation was conducted. Storage areas could use waste heat from the molding operation and thus eliminate the necessity of running the cold press and producing unwanted parts which have to be reground and processed again later. thus cutting their time. (Of course preheating can also be achieved using a source of heat other than waste heat. Even additional heaters might be justified if the energy cost for preheating the molds is lower than the cost of imperfect runs). In order to determine how to shift internal setups into external setups. it is critical to minimize their duration. From the previous statements it is obvious that shortening of the internal setup time has much higher priority. It is possible to divide the setup tasks into two groups: internal and external. Changing from internal to external setup usually cuts time by 30% to 50%. Even during a one day assessment it is possible to discover great opportunities for time savings during setups. Since production continues making useful goods in the meantime. Operators must be involved--external setup does not mean a different location or different people. The first step is to identify internal and external setup tasks. Keeping setup changes out of the hands of the machine operators merely creates a class of setup experts. it is not as essential as with the internal setups to cut down the time required for the external setups. Informal discussions with the workers and observation of the process often suffices. One point should be brought to attention. EXAMPLES OF HIGHER EFFICIENCY Preheating new dies for molding operations can be used as one example. 20 . Since internal set-up tasks require a break in production.

die A Standardizing Shim at Clamping Height 80 50 30 die B 320 30 80 50 Clamp Height Standardization Clamp Height Standardization Die Height Standardization Shim for Standardizing Die Height Positioning of a jig on a table by trial and error adjustment can be virtually eliminated by machining center holes and corresponding pins. Then. thus the operator doesn't have to change tools. same size bolts should be used for all dies. though. after preparing the mold. Use of the same length bolts is a bonus. The volume of the cylinder should be about 1000 times that of the mold cavity. welding of supporting legs can eliminate press shut height adjustment and enables the operator to use the same length bolts for clamping. The adjustment of the height is tedious and time consuming and very critical for the proper operation of the press. 21 . During the molding operation vacuumize the tank. A quicker method of creating the vacuum in the mold is to attach a cylinder to the mold using tubing with a valve. the valve is opened and the air from the mold will rush into the cylinder. Another example could be standardizing the height of die. To achieve that using a vacuum pump takes quite some time. but this time the operation will take fraction of the original time.Vacuum molding needs an almost complete vacuum. If one is higher than the other. Also. The process is finished with the vacuum pump to achieve complete vacuum. The major benefit is the same shut height of the press.

especially getting it through a length of a bolt that is too long and doesn't help in any way in attaching. Use of U-shaped washers could also be implemented. One should not be required to turn the nut all the way out of the thread of the screw. clamp The Clamp Method 22 .Attachment Plate die (set to h2/2 + Θ = K) h2/2 Θ X Y Jig for Adjusting Thickness centering jig on attachment plate (female) centering jig on machine (male) Centering Jigs One-turn clamping is a way to fasten and unfasten a piece using a single turn. Pear shaped holes for fasteners are another option.

the real problem lies in standardizing processing times. Then the goal should be at least not to produce more than necessary.) This can be accomplished by standardizing both processing quantities and processing times. (Based on available data. In other words. production time could be cut. The capacities of machines vary as well. the highest output machine should not automatically be the targeted pace (meaning that there normally would be an effort to bring the capacity of slow machines up by parallel processing or other productivity 23 . common reductions are as much as two fifths. This is because different machines perform various operations and do not take the same times.clamping holes Fasten Here Attach and Remove Here Pear-Shaped Holes for Clamping by Turning Other great delays in production are caused not by inspection or transportation. If the waiting periods could be eliminated. but by time spent waiting for the processing of one lot to be completed before another lot can be processed. In some cases the disparity among machines cannot be eliminated. Standardizing processing quantities can be achieved fairly easily.

pins. Principles • Adjustment cannot depend on feeling or experience • Functional clamps should be used over screws • If screws are necessary.) Questions to Ask The auditor should always ask questions pertaining to setup times and practices. one remedy is to build up inventory. the reduction of a setup time should enable the reduction of inventory. There is no absolute value for a proper setup time--an engineering judgment must be used. It is important to bear in mind. When demand calls for high diversity and low volume. However. it should be automatic when part are pressed together (using pins. The auditor should ask 24 . In some cases the answers given will immediately alert the auditor and call for his attention. If. design them in such a way that one turn will fasten and unfasten the fixture • Dovetail connectors. Asking how much time setups take is an obvious one. it is found that inventory is excessive and setup times rather long. The result could be that the fast machine has to wait. that is external setup application • Movements should be combined or linked together • Parallel operations should be conducted • Setups should produce defect free products from the very beginning of the run • Quick connect and disconnect • Centering adjustments should not have to be made. that while machines can be idle. The quantities produced should be the quantities needed. Even if the number of setup operations cannot be reduced. etc. but the pace is set based on actual needs. frequent setups are necessary to produce a great variety products. the time involved can be. after objective evaluation. workers must not be because the cost of manpower is generally far higher than the cost of amortizing machines.improvements). wedges should be used • Intermediary jigs should be used. cams. The major difficulty in the production of relatively small quantity lots of any product is either the number of setup operations or the length of time it takes to perform them. The goal is not to overproduce because if something goes wrong all pieces in stock (or manufactured in the previous operation and waiting for the next machine) are wasted. however.

If not. there could be a variety of reasons for an idle machine. a great opportunity may present itself at once. If during the plant tour one notices idle machines. Inventory build-up is one definite consequence of long setup times (among possible other reasons). it seems that the pictures and concepts are at least as helpful as the case studies. Long lead times indicate large lot sizes and the reason for large lot sizes is most likely long setup times. • How much time does it typically take to setup XYZ machine? • Do you need to do any adjustment to the machine? • Do you need to use any gauges or other measurement devices to adjust the machine? • How many different tools do you need for the setup of XYZ machine? • Can the setup be performed by the operator or a specialist is need? • Do you need a period of time when you run pieces which are used just to get rid of initial problems? • Do you need to idle the machine for a while to bring it up to speed or to a proper temperature? • How do you clamp pieces to the machine? Do you use the same fasteners in all the cases? Symptoms/Indicators One of the most revealing indicators is excessive inventory. a possible reason to consider is that the machine is waiting for a trained personnel to do the setup.questions which will give him answers as to whether the practices listed in the PRINCIPLES paragraph are used. Of course. • DECREASE CHANGE OF DIES & START-UP TIMES • USE FIXTURES TO REDUCE LATHE SET-UP TIMES • INSTALL A ROTATING NOZZLE CAROUSEL TO REDUCE SET-UP TIMES • EMPLOY MODULAR JIGS TO REDUCE PROCESS SET-UP TIMES 25 . However. Related ARs Two ARs are included under this category.

the tools should be organized so the technician knows exactly where each tool is located and no time is wasted searching for misplaced tools. Further. For example.operations which can be performed only when the machine is shut down (or at least not producing useful products) external setup -.Assessment Recommendation No.4 4 Shigeo Shingo. "A Revolution in Manufacturing: The SMED System".000 Simple Payback Period = 1. 1985. A solution to this problem is to deliver all needed tools to the machine PRIOR to shut down. long set-up times are not always necessary and should be avoided--especially when set-ups must occur frequently. 113 26 . The setup procedure can be divided into two operations: internal setup -. While this may not reduce the total time spent performing and preparing for the set-up. it is a common mistake for a technician to waste valuable time by retrieving tools after the production line has been shut down.000/ year Estimated Implementation Cost = $3. however.operations which can be performed while the machine is running The first step to reducing set-up times should be to shift as many operations as possible into the external set-up mode. and ii) the length of time it takes to perform each set-up. it WILL reduce the amount of time that the production equipment is offline.7 years (about 20 months) General Two major difficulties in the production of relatively small quantity lots of any product are: i) the number of production line changes (“set-ups”) required. Productivity Press. Frequent set-ups are necessary to produce a great variety of different products.820. 1 Decrease Die Change-Out & Start-Up Times Assessment Recommendation Summary Estimated Cost Savings = $1. p.040. Documented results across a wide variety of industries indicate that set-up times are commonly reduced by as much as 95% once reducing set-up times is identified as a priority and quick-change strategies are implemented.

” establishing a standard set of guidelines about which path to take will reduce guesswork and the associated costly time delays. and the intervals in between the shears' cuts are synchronized to produce the proper sized gobs. Although there are “many different paths to the same point. Most of these operations are presently carried out sequentially. brings in new dies and mounts them into the individual molding stations. Recommended Actions Reduce die change-out and start-up times by implementing the following: • Utilize the knowledge of your most experienced technicians to develop standardized procedures for all phases of change-out and start-up -. the shoots leading to the individual dies are replaced. Next. Production personnel stated that there are “many different paths to the same point. depending on whether just the molds need to be changed or whether the process also needs to be changed. This second stage of the set-up procedure. and mold alignments. if a “start-up” procedure is still in process when the first shift set-up team leaves. the timing of the piston pushing the gob out of the fore-hearth is changed. These procedures typically take anywhere from 1 to 4 hours. each technician goes about these adjustments in his own way and experience plays a large role in the speed of the adjustment process. The average set-up time was said to be about 20 hours. there are 60 production changes per month. On average.This should include a sequence of start-up adjustments. The set-up team. Since minimal written standardized procedures presently exist. referred to as “start-up. The second stage of the set-up process involves the fine tuning of the glass temperatures.” may take from 4 hours to 3 days. Since there is only one team capable of making the changes. 27 . from the time the previous run is shut down until glassware of acceptable standards is obtained for the new product. no adjustments are made until the following morning and that night’s production hours are wasted. mechanical timings. consisting of 8 specialized technicians. cooling air flows. the 24-hour period available in one day is not fully utilized. Hence.” meaning that each technician may use a different path but they are all experienced enough to eventually obtain the desired results.Existing Practice and Observation The following description is based on our conversations with experienced staff and not actual observation of a procedure because during our visit a change of dies on the production line was not performed.

we will consider saving only one fifth of the existing set-up time. Based on the large potential cost savings. Based on the recommendations. Being conservative.This will save time during the change-out phase by allowing technicians to work on the upper level adjustments at the same time other technicians are performing mold change-outs and other lower level adjustments.This will minimize production line down-time which is presently used for retrieving these items • Develop a troubleshooting guide describing common start-up problems and their fixes -. the quickest possible implementation is recommended. this number was considered reasonable by the production manager. • Install Temperature Sensors -. our recommendation is based on estimates made by experienced staff at your company. including the development of standard procedures. These actions cannot presently be performed simultaneously.This will allow quicker mold alignments.This will save time presently used searching for tools • Deliver all jigs. 28 . Anticipated Savings Since the savings mentioned in the General section (a 95% set-up time reduction) seem too aggressive and also because they are based on sometimes time-consuming analyses of the setup operations. to the machine prior to shutting down the production line -.• Design a tool kit which will hold all change-out tools in an organized manner and deliver the kit to the machine prior to shutting down the production line -. Several of the suggestions above are already under investigation by plant personnel.This will reduce guesswork when responding to problems • Purchase and install two-level platforms -.This will allow quicker temperature adjustments and better control. • Install Strain Gauges -. dies. etc.

no additional raw material costs will be incurred for a production line as a result of the set-up period because the gobs will be recycled and added to the furnace as cullet.06/hr per production line CES = Cullet Energy Savings. based on a labor rate of $25.CMS . it was determined that it costs $5.200 Btu/lb less heat to melt cullet than it does to make glass from virgin raw materials. 1989. $10.32/hr less to re-melt the cullet which is collected during the set-up period as compared to virgin raw materials. The value of raw materials added to the furnace for each production line is $10.(14.($5.($10. is estimated as: VST = GSH .Setup Times for All Lines) = ($45. GSH. Even with all labor savings neglected.000 hrs/yr) . VST = ($647/hr) . the potential cost benefit is substantial. assuming that the time lost could have been used to produce salable products. 29 ./yr)(20 hr/chg)] = ($45.96/hr.32/hr) VST = $631.000/yr)/[(10 lines)(8400)hrs/yr .400 hrs/yr)] = ($45.5 The value of the saved production time. Facing America's Trash: What Next for Municipal Solid Waste The calculation assumes that the saved labor time is put to productive use in other areas of the facility.)(12 mon.000.06/hr) .CES where CMS = Cullet Material Savings. From this value.000.000.62/hr per production line ≈ $632/hr per production line We estimate the value of saved production time as $632/hr per production line. To be conservative. molten gobs of glass are dripped into the basement and are later crushed and used as cullet. $5. VST.(60 chg/mon. however. can be obtained as follows: GSH = Gross Sales / (Annual Operating Hours for All Lines .000/yr) / (69. In addition. these cost savings have been omitted from our annual cost benefit estimates.06/hr.600 hrs/yr) GSH = $647 / hr per production line It is assumed that during set-up time.000/yr) / [(84. The following calculation is an estimate of labor saved by performing this recommendation6. 5 6 Office of Technology Assessment.32/hr per production line Thus. it takes 1.The gross sales per processing hour. Hence.

Platform Costs = (10 platforms) x ($5. Strain Gauge Costs = ($35.84 / setup per person Wages Saved per Setup = (8 people) x ($103.72 / setup) Wages Saved per Year = $0...72 / setup Hence.686 2) The purchase and installation of jigs and strain gauges for all 78 production dies.000 4) temperature sensors (3 per fore-hearth) 30 . Labor Costs = ($25. Hence.96/hr. Wages Saved per Year = (60 chg/month) x (12 month/yr) x ($830. x (40 hr/wk) x (8 people) x (3 furnaces) Labor Costs = $99.84 / setup per person) = $830..96/hr) x (4 hr) = $103.. for 8 people working 8 hour days at a labor rate $25. Hence.60 x 106 / year By reducing the present set-up periods by an average of 4 hours each. ACB.82 x10 6 / year Implementation The estimated costs for the specific recommendations listed previously include: 1) Labor for equipment installation and preparation of setup tooling and standard procedures.000 per die) x (78 dies) Strain Gauge Costs = $2.20 x 20 hr = 4 hrs Wages Saved = ($25.96/hr) x (4 wk/person/furnace) x . the cost of the required six strain gauges per die is $35. would be: Annual Cost Benefit = (Production Time Saved) x (Value of Saved Production Time) ACB = [(60 chg/month) x (12 month/yr) x (4 hr/chg)] x [$632/hr] ACB = $1. The labor involved is estimated at 4 weeks of work for each furnace.Time Saved per Setup = 0.000. including installation.73 x 10 6 3) ten two-level platforms.000/platform) = $50. the annual cost benefit. Based on a quote already obtained by facility personnel. .

. We do not pretend to have thorough enough knowledge of your existing procedures to be able to specify the definite steps which are needed in order to achieve the indicated savings or an accurate implementations cost. It is assumed that 3 sensors per fore-hearth will be installed. and conversations with plant personnel. the present lengthy set-up times at your facility. However. Due to the large savings potential. x ($5. Sensor Costs = (3 sensors/fore-hearth) x (10 fore hearths) x .000 + $99.04 x 106 The simple payback period can be calculated from the following equation: Payback Period = (Implementation Cost) / ES = ($3. 31 .500/sensor) Sensor Costs = $165. .686 = $3.500 a piece.000 Finally. The sensors cost $5.04 x 106) / ($1.82 x10 6 /yr) Payback Period = 1. based on case histories from other facilities. Cost = $2. the estimated cost savings are considered reasonable.The estimate is based on the price for an infrared temperature sensor capable of reading temperatures up to 3000 ˚F. Cost = Strain Gauge Costs + Platform Costs + Sensor Costs + Labor Costs Imp. the combined estimated implementation cost is: Imp..000 + $165. we hope that the above example will reinforce your present efforts to reduce set-up times and serve to focus your attention on this critical part of your operations.73 x 106 + $50...7 years (about 20 months) Conclusion: It is important to realize the potential in implementing this recommendation.

It is recommended that in the new process the bits are held in a holder which is mounted precisely in a predetermined position on the lathe machine. The production of the washing machines is at approximately one machine every ten minutes.000. There are more models if software variations (therefore more programming options) are considered as well.180 Simple Payback Period = 0. 2 Use Fixtures to Reduce Lathe Set-up Times Assessment Recommendation Summary Estimated Cost Savings = $378. 32 . Perform the bit alignment while the machine is running and have the fixture ready for a swap when needed. Existing Practice and Observation A four-spindle lathe is used to machine the diameter of shafts used for the revolving blades in washing machines. That was one of the most time consuming adjustments. While the machine is running the bits are mounted into a holder and still adjusted using a variety of gauges. as is generally the case when gauges are employed. Before the improvement program began. The company offers four different models of washing machines in terms of hardware. A delicate adjustment needed to be made for the lathe cutting bits.08 years (about 1 month) Background The company makes washing machines which are sold around the world. Since it was a single purpose lathe machine the opportunity to convert internal setup into external setup was obvious. the cutting bits were changed inside the machine and because of close tolerances required. a number of gauges had to be employed. but the whole process became an external setup not taking time from production.000.Assessment Recommendation No.000/year Estimated Implementation Cost = $29. The company sales are $70. Recommended Action Make fixtures for holding the lathe cutting bits. The change now encompasses the switching of a holder instead of the individual bits.

000) = 0.180) / (378. Average Number of Setup Changes per Month = 30 ES = (# of pieces/hr) x (value of a piece) x (original time . Implementation Labor Rate = $40.5/piece) x (15 min .Anticipated Savings Material = $575/fixture Labor involved represents the manufacture of the fixtures.08 years = (approximately 1 month) 33 .720/per fixture Implementation Cost = (575 + 6 720) x 4 = $29.00/hr) x 1.4 (fringe benefits) x (1 week) x (40 hr/week) x 3 (people) = $6.5 min) x (1/60 hr/min) x 30 x 12 = $378 000/year ES = $378 000/year In this case the savings represent lost production on the machine.180 Simple Payback = ( time) x (# of setups/year) ES = (200 pieces/hr) x ($31.00/hr Time to Manufacture = 1 week People Involved = 3 Number of Fixtures Needed = 4 Labor = ($40.

The production rate is about fifteen pumps an hour. the expenses were minimal amounting to approximately $1. the manual change and adjustment of the nozzles before the next type of a pump started being produced was eliminated. The rotation takes a couple of seconds. The change and position adjustment takes a skilled operator about five minutes. After the nozzle is properly adjusted it automatically fills the pump cavity. even though the filling of the intermediate fluid was automatic when the production line was running. 3 Install a Rotating Nozzle Carousel to Reduce Set-up Times Assessment Recommendation Summary Estimated Cost Savings = $60. As stated above. One pump assembly can have up to six different head arrangements. Since the cylinder sizes differ. Recommended Action The fix of the problem consisted of rotary mounting hardware making it adaptable to different types of pump cylinders. which are mounted on a single gearbox.750 / year Estimated Implementation Cost = $4. the rotation is initiated by a switch which positions the multiple rotating carousel with different nozzle location into the proper place.200 per fixture. The pump models differ by size. Existing Practice and Observation The filling of the cylinder cavity is performed with nozzles which are positioned above the filling hole in the cylinder.000. 34 . the line had to be stopped for five minutes for the manual adjustment before the run could resume. The company sales are $85.Assessment Recommendation No. After the change. However.000. all the hydraulically actuated diaphragm pump arrangements share the basic idea of an intermediate fluid which has to be filled into the cylinder of a pump at a certain position as the pump proceeds on the line. The pumps are hydraulically actuated tubular diaphragm type. Since the existing nozzles were utilized in the design of the rotating fixture. the nozzle has to be changed and repositioned every time there is a change of a pump size.200 Simple Payback Period = less than one month Background The company makes metering pumps predominantly for the American market. For all that time the pump assembly line is shut down. As a result of this improvement.

200 Average Number of Pump Sizes per Month = 10 ES = Estimated Savings = Net Sales Increase ES = (# of pieces/hr) x (value per piece .750/yr) Payback Period = 0. Since 6 extra nozzles were needed.Anticipated Savings Material and Labor for the New Nozzle Carousel = $1. We have assumed that the only costs which will increase due to increased pump production are the raw material costs. Implementation Implementation requires the manufacture and installation of the nozzle carousel ($1. $1800 of expenses have to be added to the cost of the project. It was recommended to buy an extra set of nozzles as a backup in case of failure of existing ones.07 years (less than 1 month) 35 .5 minutes) x (1/60 hr/min) x 10 x 12 ES = $60. The cost of material was estimated at $800 and labor at $400. The simple payback period can be calculated from the following equation: Payback Period = (Implementation Cost) / ES = ($4.material cost per piece) x (time saved) x (# of changes/yr) ES = (15 pieces/hr) x ($950/piece .$500/piece) x (4. Energy cost increases are assumed to be negligible. and gross labor costs will remain unchanged because the laborers who are presently waiting during the changes will be producing additional pumps during the recovered change time. The cost estimate obtained from the nozzle manufacturer was $300 a piece.200).200) / ($60.750/year In this case the savings represent lost production on the line.

the drill had to be removed because it was in the way when the jigs were replaced. First reference holes were made. That way the heavy base part of a jig can stay in place all the time and different parts of the jig are replaced as needed. The facility is housed inside a single 200. In addition. in the meantime. The jigs for different operations were very heavy and therefore they had to be removed with the help of a crane.1 years (about 1 month) Background The company manufactures connecting rods for combustion engines. then a bolt hole was drilled. The number of employees at this location is 170. During setups. The sales are about $30. The operators. The manipulation with the crane is completely eliminated. The total time involved was five hours and forty-two minutes. The oil hole was drilled followed by large end cut. Then the parts were transferred to the line where they went through the following process. Recommended Action Employ jigs which would be modular. The cap was attached and the whole assembly bored out. All the modular parts must be manufactured with centering holes or grooves so manual adjustment after installation is not needed. Existing Practice and Observation The aluminum die cast parts were delivered into the stock. 36 .000 ft2 steel beam construction type building.000. was lifted onto a table.115 Simple Payback Period = 0. the trained setup technicians came to perform the desired change.450/yr Estimated Implementation Cost = $8.000/yr. Centering adjustments were required when a jig. were cleaning around the line. 4 Employ Modular Jigs to Reduce Process Set-up Times Assessment Recommendation Summary Estimated Cost Savings = $117.Assessment Recommendation No. cleaned off with petroleum jelly.

Based on the same wage structure as for mechanics the cost of the change would be: COST = (8 hours x 5 days x 3 weeks) x $25.000 Wages Saved $40.450 / year where ES = Estimated Savings Implementation Implementation requires manufacturing eight different fixture subassemblies.115 The simple payback period can be calculated from the following equation: Payback Period = (Implementation Cost) / ES = ($8 115) / ($117 450/yr) Payback Period = 0.1 years (about 1 month) 37 .000 = $117. The time involved is estimated as three weeks.000 x 1.000. PLM = [(25 chg/month) x (12 month/yr) x (4. Total Cost = $8.450 / year where PLM = Production Lost Money Wages of qualified mechanic = $40.35 fringe benefits = $54. The time to perform the setup is estimated to take about one hour.115 Material cost was estimated for $5.Anticipated Savings There is an elimination of one person during the setup operation because now the adjustment is not needed and the operator can perform the task alone.000 ES = PLM + Wages Saved = $63.450 + $54.7 hr/chg)] x [$45/piece] = $63.96/hour = $3. The main bodies of existing jigs can be used.

38 .

the relationship between increased revenue and increased profits will be based on the amount of information available and should be handled on a case by case basis. In most instances. In order to identify a bottleneck. labor. or by (idle) machines. operators complained that the quality of the thread made it difficult to thread the machines. in fact. or higher quality raw materials. Identifying and alleviating a bottleneck in the manufacturing process allows an increase in throughput (pieces/person/hour) of a particular process. Second. by parameter control (temperature. however two cautions are noted here. Alleviating bottlenecks is often accomplished by installation of improved equipment or tools. Increasing the production rates can have additional costs involved. this will increase revenue. or an existing one optimized. Changes in the specifications of the thread eliminated this bottleneck at a minimal cost to the company. and metals. such as increased raw materials. it is important to realize that the perceived (or “theoretical”) bottleneck may not. on a bottleneck. On a per unit or per piece basis. industries that have high internal rejection rates may not require more raw materials if the defect rate is reduced. It can also be accomplished by the purchase of manufactured parts. For example. the issue should be brought up during the interview. plastics. If alleviating the bottleneck also reduces re-work. If a new piece of equipment is installed. In most cases. the recommendation may not require more labor. these quantities should remain constant or even decrease in some cases. however it could also be used to reduce production lead time. It is usually identified by waiting. or of the entire plant. Upon questioning. a sewing factory manager described the hand threading of the needles as the bottleneck.Bottleneck Mitigation Introduction A bottleneck in manufacturing is that process (or procedure) which restricts the entire operation from running faster. glass. 39 . Conversely. humidity). First. Discussions about this topic with machine operators is advised. be the real bottleneck. many companies do not consider the effect of the net production rate. Examples of such industries are paper. including scrap. if possible. it may not use more energy. They might not define a process/procedure as a bottleneck if a defective part is produced and it can be re-used as a raw material. or energy use. either by workers. however.

product.Questions • How has the operation changed over time? (product. if you can make it? • Are you considering expansion? • Why is this process/procedure the bottleneck? • Do you ever run overtime to meet production goals? (related costs) Indicators / Symptoms • Waiting . tools • Excess Inventory (raw materials or in process) • Excessive motion or transportation Related Recommendations • • • • • PURCHASE / INSTALL MORE EFFICIENT MACHINERY PURCHASE BETTER TOOLS CHANGE THE SPECIFICATION OF RAW MATERIALS CONTROL PROCESS PARAMETER (TEMPERATURE. procedure) • What is the optimal rate of this process/procedure? • Can you sell more product. machines. HUMIDITY) USE AVAILABLE "LESS EFFICIENT" EQUIPMENT 40 . equipment.for people.

Assessment Recommendation No. 5 Add Machine Operators to Reduce Production Bottleneck Assessment Recommendation Summary Estimated Cost Savings = $208,780 /yr. Estimated Implementation Cost = $47,520 Estimated Payback Period = 0.23 years ( ~3 months )

Existing Practice and Observation During interviews with plant personnel, it was stated that the production bottleneck in the plant should be the tire press division; however, it was noticed that the tire presses are idle for about 10% of the time because they are waiting on in-process material from the previous process (tire machines). Automatic and manual tire machines construct the structure of the tires so they can be molded in the presses. There are 75 automatic and 50 manual tire machines. The automatic tire machines process 9 tires per hour and require only one operator. The manual machines are less efficient, producing only 6 tires per hour with one operator. With two operators, the manual machines can each produce about 9.7 tires per hour. Since this results in a lower tires per person rate (and a higher labor cost per tire) in the tire machine division, only one operator is presently used on the manual machines. The operating cost for the tire presses are relatively unchanged by increases in production, so if the presses were to operate at maximum capacity there would be very little additional operating costs. According to management, the company can sell all the tires it can produce (at the current price) and opportunities to increase the total plant output are of great interest.

Recommended Action A second machine operator should be added to the manual tire machines in order to increase the production enough to keep the tire presses operating continuously. The additional operators on the manual tire machines will increase the cost of producing each tire in the tire machine division, but will lower the overall production cost per tire by eliminating the existing idle time of the tire presses. Idle time at the tire presses is a waste of the labor efforts of the press operators.


Anticipated Savings Under the present operating conditions, at maximum output the tire machines can only produce 23,400 tires a day and are doing so. If a second operator is added to the manual tire machines for all shifts, the maximum daily output from the tire machines division will be 27,840. If the tire presses are operating continuously they can only mold 26,000 tires a day, so it will not be necessary to keep two operators on all of the manual machines during every shift. Only enough extra operators to increase production to 26,000 tires per day will be will be needed to eliminate the idle time of the presses. The number of estimated additional operator-shifts per week is 88. We have conservatively assumed that the only costs per unit which will be affected by the increased production of tires will be from these two divisions (machines and presses). As the total production is increased, the total costs for each other division will increase but the cost per unit should remain the same. For example the total cost for raw materials will increase because more tires will be made, but the raw material costs per tire will not be affected. These increases in total cost will be proportional to the increase in revenue from sales of the new tires. The annual total cost savings, ATS, achieved by the addition of a second operator on some of the manual tire machines can be determined using the following equations: Operating cost with one operator on the manual tire machines: CIA = The cost per tire (tire machine division) with only one operator CIA = [ (CPO x HRO ) x (NAM + NMM) ] / TAO + TMC CPO = Cost per hour for machine operator HRO = Hours of production operation NAM = Number of automatic machines operating NMM = Number of manual machines operating TAO = total amount of tires produced per day with one operator TMC = cost to operate the tire machine for each tire CIA = [($32.50/hr x 24 hrs) x (75 + 50) ] / (23,400 tires) + ($0.75/tire) CIA = $4.92 per tire in tire machine division CTP = The cost per tire to mold the tires produced by single operators CTP = (NTP x HRO x CPO) / TAO + CPT NTP = number of tire presses (there is one operator per tire press) CPT = cost to run the press per tire CTP = (145 presses) x (24 hrs) x ($32.5 / hr) / (23,400 tires) + ($0.33/ tire) 42

CTP = $5.16 / tire TTPO = The total for the two processes with one operator TTPO = CIA + CTP TTPO = $4.92/tire + $5.16/tire TTPO = $10.08 per tire Operating cost with two operators on manual tire machines: CSO = cost per tire (tire machine division) with second operator CSO = (CPO) / (MPR) + TMC MPR = additional tires/hr produced by second operator on manual machines CSO = ( $32.5 / hr ) / (3.7 tires / hr) + ($0.75) CSO = $9.53 / tire The extra tires that are produced will not require any additional operators at the presses, therefore no labor costs at the presses will be associated with the additional tires--the workers will now be producing tires during the time previously spent waiting for tires to be delivered. The only additional costs that will be incurred at the tire presses are for the increased maintenance and energy costs of the machinery. CPS = cost for the press to make additional tires (no additional labor costs apply) CPS = CPT CPS = $0.33 per tire TTPT = Total cost per tire for the two processes with two operators TTPT = CSO + CPS TTPT = $9.53 / tire + $0.33 / tire TTPT = $9.86 per tire The unit savings per tire, UST, for additional tires produced will be: UST = TTPO - TTPT UST = $10.08 / tire - $9.86 / tire UST = $0.22 per tire Finally, the total annual cost savings, ATS, can be calculated using the following formula: 43

CTO = NOW x THT x CPT NOW = number of workers to be trained THT = number of hours that the workers will be trained CPT = The hourly rate paid for time while training CTO = (88 workers) (24 hours) ($22.00 when operating the presses at a 90 percent level. a twentytwo cent drop from the cost to make the first 23.400 tires. Implementation and Simple Payback The additional workers that are hired to work on the manual tire machines will have to be trained to operate the machines.ATS = SPA x NAT x DPY SPA = Savings per additional tire produced NAT = Number of additional tires produced per day DPY = Production days per year ATS = ($0. can be determined using the following equation.467. From the previous conclusions.780 / yr The company has determined the cost to make one tire including all expenses is $26.00/tire) x (2600 tires/day) x (365 days/yr) = $2.23 yrs ( ~3 months ) 44 .520 / ($208.78 for the additional 2600 tires produced. CTO.780/yr) = 0. the cost per tire will drop as the presses begin to operate at a rate closer to 100 percent. It was stated that the cost per tire will only change in these two areas if the additional operator is used on the manual tire machines.600 tires/day) (365 days/yr. Assuming a 10% profit on each tire.22/tire ) (2.520 Payback Period = Implementation Cost / ATS = $47.400/yr. The total cost to train the operators. The cost per tire will drop to $25.50 /hr) CTO = $47. the increased annual revenue obtained from producing the extra tires (not including the savings calculated above) would be (0.10) x ($26. Not included in the above savings calculations is the additional revenue produced by the sales of the extra tires.) ATS = $208.

The operators feel that high humidity levels are the cause of the sticking. Tests in the production area have indicated that the humidity levels are not above those recommended by either the manufacturer of the cutting machine. They are then stacked to a pre-determined count.000. They stated that the sheets would stick together if the surface temperature of the finished product was above 100˚ F. Further discussions with the manufacturer of the raw materials uncovered that it is. Management has indicated that the company sells all of the sheets produced and would like to increase production levels in order to gain increased market share. and passed through a cutting machine which cuts them into the desired finished width and length. this machine should be producing 1500 sheets per hour. This new machine would cost approximately $150.611 Simple Payback Period = 7 months Existing Practice and Observation The process of manufacturing thin plastic sheets for the printing industry involves melting the raw materials and pellets.000/yr Net Profit Increase = $24. a temperature parameter that is being exceeded. The rolls are then trimmed. mixing them with pigments and other additives.Assessment Recommendation No. Discussions with management reveal that your company is considering the purchase of a second machine to reach production goals. in fact. and molding them into rolls. or the supplier of the raw materials. According to the manufacturer of the equipment.700/yr Estimated Implementation Cost = $13. packaged and shipped. The reduced production rate is due to the fact that the sheets stick together if the machine is run any faster. Measurements of the surface of the film indicated temperatures averaging 120˚ F. The bottleneck in the process is the cutting machine which is presently running at approximately 1000 sheets per hour. 6 Install Refrigeration System to Cool Product Assessment Recommendation Summary Estimated Additional Revenue = $285. 45 . The option of air conditioning the entire facility to alleviate the problem was rejected by management.

$600/ ton 200.000 $396 $378 $1. Anticipated Savings The operating cost of the refrigeration equipment is estimated to be about $3. We also recommend that the unit have the capability of recording the production rate of the cutting machine.800/yr) Est.800/yr.) add 10% Total 46 = $10.10) .000 hr/yr) x ($0. The controllers should be specified with either Proportional Integral or Fuzzy Logic Control.($3.700/yr Implementation Implementation of this recommendation requires that two 100. and on top of the stack of film. etc.000 Btu/hr.000 BTU x $600/ton Infrared Temperature Sensors (4) Controller (2) Labor: 20 hr x 2 installers x $40/hr Ancillary Equipment (utilities. Savings = (500 sheets/hr) x (6.. with one ducted to the bottom of the leaving sheets. Estimated Savings = Net Profit Increase = IP x hr x V x P .237 $13..000 BTU/hr x 1 ton/12. Calculations show that 180. Savings = $24. and with alarms. of refrigeration is required to reach desired temperatures and production rates.095/sheet) x (0.600 $1.611 .Recommended Action Install a refrigeration system with ducting to blow cool air both under the sheet leaving the cutting machine. Refrigeration units . Each unit should be controlled by an infrared temperature sensor.OC Where IP = increased production/hr hr = hours of production 30 hrs/shift x 4 shifts/wk x 50 wk/year V = Value of Product ($/sheet) P = Profit Margin (assumed to be 10%) OC = annual operating cost of the refrigeration equipment Est. This will provide some redundancy in the event that one unit is out of commission.000 Btu/hr air conditioning units be purchased. and the other directed to the top of the stack.

000 pieces per year. Current production is 440.546 per part $191.000 more pieces could be sold if produced. Overhead (Burden) costs are estimated at 200% of direct labor costs for this company. Spoilage rate (defects) average 3. This machine can still be operated by a single operator.100. Increased demand for pieces indicates that up to 50. Competition is making inroads on profit margin. 7 Replace Old Lathe With New Automatic Multi-station Tool Assessment Recommendation Summary Estimated Increased Profit = $239.000. Anticipated Savings Annual Sales per year/Parts per year Current Direct Labor Cost Fringe Costs for Labor (35%) Current Cost of Raw Material Overhead at 200% Direct Labor Total Estimated Cost = = = = = = $4.000 per year for these pieces. It is believed that lowering production cost can result in increased sales and profits Recommended Action Purchase a new automatic multi-head machine tool which is estimated to produce 180 pieces per hour to replace three of the current machines.85% for the current machines. Direct labor costs for the machine operators are estimated to be $23 per hour and the operator works 2. The new machine is expected to use the same amount of power per part but have only a 1% spoilage rate.360 $66. Competition has been putting pressure on the company to maintain its profit margin and sales level. Production on the four present machines has been 220 pieces per hour.976 $1.Assessment Recommendation No.4 months) Existing Practice and Observations Machined piece orders have been sufficient to use the full year's time of four machine operators.000 per year.500 Simple Payback Period = 0. Raw material costs are about $1.000/yr Estimated Implementation Cost = $67.080 hours per year.28 years (~ 3. The new machine cost is estimated as $75.000 47 .100.720 $1. Annual sales are $2.741.000 including installation and removal costs of three old machines.000 $382.

687. If it is estimated that overhead costs will remain the same due to increased debt costs and perhaps marketing and sales costs.$3.000/yr .546 per part .000.957 per part Profit per part (estimated) = $4.957/part = $0.500.960/yr The increase in profit would be: $498.175. Assuming all the goods can be sold at the current price per part the profit would be: 480.660 pieces per year.28 years (~ 3.Estimated Cost Per Part = $3.150 is due to the increased sales with a better margin.Annual Costs) = $259. The salvage value of the three old machines is estimated to be $7.000/yr = $239.546/part .957 per part . The net implementation cost is then $67.589/part Estimated Profit margin = 15% Estimated Profit = (Annual Sales .000 Estimated Cost Per Part = $3.500 and the simple payback is: ($67.4 months) 48 . then conservatively: Future Direct Labor Cost Fringe Costs for Labor (35%) Future Cost of Raw Material Overhead Total Estimated Cost = = = = = $95.$259.510 per part) = $497.$3.490 $1.000 $382.500) / ($239. Implementation and Simple Payback The cost of the new machine with installation is $75.680 $33.447 per part The manufacturer will thus have room to increase profit margin and produce more parts than the previous years.720 $1.000/yr) = 0.000/yr Using the new machine and one of the current machines production will be 480.510 per part = $0.660 parts/yr x ($4.$3. but decreased direct labor costs.510 per part Cost Savings per Part = $3.850 is the increase due to decrease in cost per part and the remaining $42.000/yr Of this increased profit about $196.

A process can yield a large number of defects but zero scrap if the defective items are re-used in the process. Feedback from the sensors to machine operators may be achieved using 49 . Once the nature of the most costly defects are identified. the nature. The major tasks involved in making a defect reduction recommendation will be: 1) identifying those defects which are most costly. The first two items above can normally be determined by questioning plant personnel (see the question list in the next section for guidance).Defect Reduction Introduction The concept of defect reduction should be a focal point when considering potential productivity improvements in industrial facilities. 2) determining why those defects occur.” or high “internal scrap rate. the most difficult task in identifying and estimating the potential benefits of an assessment recommendation is obtaining reliable information. Sensors can be used to detect the occurrence of defects and. Time spent producing defective parts can be costly to manufacturers. Often. Fortunately. and 3) recommending actions which will reduce or eliminate the defects. energy. material handling. wasting labor efforts. more importantly. is that they are intended only to separate the defective products from the good products. and requiring increased costs for inspection. and clean-up. While this effectively reduces the number of defective products which are passed along to the customer. and causes of product defects are normally well-known by quality control personnel or machine operators. where inspections are performed at the end of the production line. Such a process is said to have a low “internal yield. installing new sensors may be a common solution or at least part of the solution. inventory. One note of caution: it is important to distinguish between defect rate and scrap rate. provide valuable feedback either to machine operators or directly to the process equipment. A shortcoming of many statistically based quality control systems. raw materials. frequency. the defects may be “hidden” from management (because there are no defective parts to be seen) but may result in significantly reduced productivity because the number of acceptable items produced by the machine or process will be less than optimal. it does very little if anything to reduce the number of defective items produced. The time between the detection of the defect and feedback to the process line is often hours or days--too long to be of much use.” In such a case.

pressures. or repair it. or by indicating to the operators that parameter adjustments (temperature. and feedback from the point of defect detection to the operation which caused the defect is immediate. When defects commonly occur as abnormalities or isolated incidents. sometimes the defect can be detected before it occurs. etc.) are needed. 50 . etc. Using people to conduct 100% inspections would be extremely expensive and impractical in most circumstances. or process control feedback. material. however. In cases where serial defects are a common problem. Various types of sensors are available which can be used to detect parameters such as: • Positions • Pressure • Shapes (2D or 3D) • Temperature • Dimensions • Humidity • Presence of foreign matter • Vibration • Damage/Displacement • Counts or cycles • Color mismatch • Timing The most thorough quality control system is one in which 100% of the products are inspected after each process. process. They have the capability to inspect at high rates of production and provide visual.. Defects should be detected as soon as possible after they have occurred to avoid additional value-added processes from being performed on a product which is already defective. audio. movements. This feedback can be used to identify the causes of defects and can lead to equipment. broken or chipped tools. shutting down the process or machine is recommended unless the start-up efforts are extensive. sensors can be installed to detect when those conditions occur and adjust the appropriate parameters or stop the process before defects are produced.). recycle. sensors may be used to perform 100% inspections with high reliability and a very low cost. In fact. humidities. Often. If the conditions which cause a defect are known (e.g. it is usually best not to shut down the production line. positioning.flashing lights and/or buzzers which are triggered by the sensor output. but to automatically reject the defective part and scrap. Immediate feedback can also be used to prevent “serial defects” (a large batch of defective products) by shutting down the production line until the cause of the defect is identified and fixed. or procedural modifications which will reduce those defects in the future. pressure. temperatures.

etc. that operator’s expertise should be used to develop standardized operating procedures for training less effective personnel. lost production time.)? • What causes each type of defect? • If you can make more product. OR PROCEDURES TO REDUCE PRODUCT DEFECTS • DEVELOP STANDARDIZED PROCEDURES TO REDUCE PRODUCT DEFECTS • INSTALL SENSORS TO DETECT.Questions to Ask • What percentage of products are inspected? • In what stages/locations of the process do the most rejects (or clean-up) occur? • What are the most common types of defects? • How much does each type of defect or clean-up cost per year (labor. and at what average pay rate? • Are in-process and/or finished goods inventories built up due to potential defect problems in the production process (to ensure that the customer gets the products on time)? If so. SERIAL DEFECTS. material. PROCESSES. can you sell it? • Are overtime hours ever worked to meet production demands or compensate for defective batches? If so.) Symptoms/Indicators • High defect rates • High scrap rate • Large in-process or finished goods inventories • Large inventory of scrap • Frequent regrinding. repair/rework.e. regrind--etc. AND COUNT DEFECTIVE PARTS AND PROVIDE FEEDBACK (TO REDUCE INSPECTION COSTS. OR ADDING VALUE TO DEFECTIVE PARTS) 51 .. what percent of existing inventory is considered excess? What is the value and quantity of overstocked goods in inventory? • Do standardized procedures exist for the processes where defects most often occur? • Does one machine operator produce significantly fewer defects than others? (If so. in-process recycling. how many man-hours per year. extra equipment or processes--i. REJECT. Related ARs • MODIFY EQUIPMENT.


Most instances of fallen glassware occurred at locations 1 and 3. Although the required adjustments are minor and usually take less than one mold cycle to perform (less than 10 seconds). there are 6 to 8 molds and swing-arms which the operator must monitor and frequently adjust. it seemed as if the operator was “fighting a losing battle” and that re-design or modification of the transfer devices (swing-arms. the operator knows the necessary adjustment to make.) is needed in order to significantly reduce the amount of fallen glassware for an extended period of time. the operator makes a small adjustment to the swing-arm to eliminate the problem. Due to the need for the operator to make such frequent adjustments.” 2) during the turn in the conveyor line at the “star” wheel. interfaces between conveyors. 53 . At a typical molding station. the time from when the glassware begins to be knocked over until the operator fixes the problem was observed to be extensive (resulting in 10 or more consecutive tipped glasses before the problem was fixed). These locations are indicated in AR#8. A mechanical device (“swing-arm”) then slides the glassware onto the moving conveyor. When the line operator notices that the glassware from one of the molding stations is repeatedly being knocked over. and 3) while being pushed by the rake from the molding station conveyor onto the Lehr conveyor. 8 Reduce Defects By Reducing Bottle Tipping Assessment Recommendation Summary Estimated Production Time Savings = 630 hrs/yr Estimated Cost Savings = $398.160/yr Estimated Implementation Cost = $152. rakes. The bottles were typically knocked over during one of three processes: 1) when being slid from the molding stations onto the conveyor line by the “swing-arms. etc. At the molding stations. freshly molded glassware is removed from a mold and placed on a level surface next to the conveyor.Assessment Recommendation No. Diagram #1. a significant percentage of the glassware on several of the production lines was observed to be knocked over during movement from the molding stations to the entrance of the Lehrs (annealing ovens).4 years (5 months) Existing Practice and Observation During the assessment visit. Based on experience.094 Simple Payback Period = 0.

all rakes are presently capable of raising on the return stroke and rake motion adjustment is a common part of the 54 ."star" wheel 1 mold conveyor 2 Molding Station "swing-arm" 3 Lehr Lehr Rake Lehr conveyor rake slides bottles from mold conveyor onto lehr conveyor AR#8. On the reverse stroke for several of the production lines. Diagram #1: Plan View of Glassware Transport System from Molding Stations to the Lehr Entrance The rake at the Lehr entrance moves back and forth across the molding station conveyor to (and from) the Lehr conveyor. According to facility personnel. the rake is raised on the reverse stroke so it passes over the glassware (see AR#8. Diagram #2). Diagram #3). the rake pushes glassware onto the Lehr conveyor. the rakes were observed to remain just above the conveyors and therefore knock over the glassware which moved behind the rake while it was in front of the molding station conveyor (see AR#8. On the forward stroke (from the molding station conveyor to the Lehr conveyor). On other production lines. No additional knock-downs occur at the raising rakes.

These sensors should also be capable of recording the number of tipped bottles which occur over a period of time (per shift) to provide feedback to management regarding machine and operator performance. Since there is a wide degree of variance between product sizes and shapes. More importantly. 55 .production line set-up procedures. and some shapes are more prone than others to being knocked over. Recommended Action Reduce product defects by installing sensors which detect when glassware is being knocked over and provide immediate feedback (a flashing light) to the line operators. primarily: 1) the “swing-arms” which slide the glassware onto the conveyor in front of the molding stations. and/or “top-heavy” glassware is most susceptible to falling over. Hence. modify (or re-design) the mechanical devices which are causing the glassware to fall over. On the line(s) with non-raising rakes and glassware with a geometry susceptible to tipping. design changes which may reduce the knock-over rate for small glassware may not work for large glassware (and vice-versa). According to the selector personnel in the “cold room” inspection and packaging area. Facility personnel claim that 9 of the 10 production lines have frequent problems with fallen glassware. glassware which exits the Lehr and has been knocked over is immediately rejected because of surface defects. Observations of inefficient rake motion on the day of the assessment may indicate that either some of the rakes are prone to becoming “unadjusted” or that the rake adjustment portion of the set-up procedures is sometimes not properly performed. and 2) the rakes which push the glassware onto the Lehr conveyor. Tall. 25% of the glassware entering the Lehr was observed to be knocked over. it may also help reduce the amount of fallen glassware to attempt to schedule similar (in terms of size and shape) glassware to be produced on the same line whenever possible. slender.

Diagram #2: Plan View of Glassware Transfer from Mold Station Conveyor to the Lehr Conveyor 56 .Represents a fallen bottle Lehr Positon #1 .Rake Forward Lehr Position #3 .Rake Back Lehr Position #2 .Glassware Knocked over on Rake Return AR#8.

Diagram #3: Existing Rake Travel Paths--Improperly Adjusted Travel Path Results in Fallen Glassware on Return Stroke 57 .Improperly Adjusted Rake Travel Path Glassware Lehr Lehr Rake Mold Conveyor Lehr conveyor Properly Adjusted Rake Travel Path Glassware Lehr Lehr Rake Mold Conveyor Lehr conveyor AR#8.

• • • • The annual cost savings. Actual reductions in fallen glassware should be greater. the required quantity of acceptable glassware will be produced in a shorter amount of time) can be used to make other products and no production line idle-time will occur as a result of the increased production rate. This assumption is based on observations by our assessment team on the day of our visit and. as much as 25% of the glassware entering the Lehrs on several of the production lines was observed to be tipped over). hrs/yr = fractional productive time (fraction of the facility operating hours for each production line which are non-setup hours). is considered to be conservative (on the day of the assessment. Seventy-five percent of the fallen glassware can be prevented by implementing this recommendation. an average of 10% of the glassware entering the Lehrs is knocked over. For the glassware shapes which are prone to tipping. again. no units 58 . was calculated as follows: ACS = NPL x APH x FPT x PFTG x FTGA x FTG x (1 . The annual production hours for a production line are considered to be the annual plant production hours minus the average monthly set-up hours per production line.Anticipated Savings This analysis includes the following assumptions: • Nine of the production lines have frequent problems with fallen glassware (based on interviews with facility personnel). no units = annual production hours. ACS. This is viewed to be a conservative assumption. The time saved due to the decreased defect rate (if the defect rate decreases.RR) x SLR where NPL APH FPT = number of production lines with tipping problems. Twenty-five percent of the glassware on those 9 production lines is prone to tipping due to the size and shape of the products. based on results achieved in other industrial facilities.

TMS x (12 months/yr) x AST / TNPL where. $/hr (per production line) According to facility management.0. hrs total number of production lines in the facility.75)(0. 7 days/wk.(60 set-ups/month)(12 months/yr)(20 hrs/set-up) / (10) = (8400 hrs/yr) . no units SLR = shutdown loss rate (cost per hour for a production shutdown).35 for the typical rejection rate. According to facility production management. no units FTGA = fraction of tipped glassware that is avoidable. FPT. APH. Thus. no units . The average combined set-up and change-out time is about 20 hours. Production lines in the plant are in operation 24 hrs/day.(1440 hrs/yr) APH = 6. FPH TMS AST TNPL Thus. RR. no units RR = typical rejection rate for a batch of glassware.PFTG = present fraction of tipped glassware (fraction of the total glassware that was observed to be tipped over). thirty-five percent of the glassware produced is rejected. is the fraction of the facility operating hours for each production line which are non-setup hours. Each “shape” change requires a mold change-out and process set-up. about 60 glassware “shapes” are produced in a typical month.10)(0.25)(1 .35)(632) ACS = (9)(70 hr/yr)($632/hr) = (9)($44.83. for a total of 8400 hrs/yr.960 hrs/yr The fractional productive time. can be estimated using the following equation: APH = FPH . Thus. we will use a value of 0. Hence. the annual production hours per production line. the annual cost savings is estimated as ACS = (9)(6960)(0. APH = (8400 hrs/yr) .83)(0. hrs/yr total number of monthly production changes (“set-ups”).240/yr) 59 = = = = facility’s annual production hours. Finally. 50 weeks a year. FPT = APH / FPH = 6960 / 8400 = 0. no units FTG = fraction of “tippable” glassware (fraction of products on these production lines whose shape and size make them prone to tipping). no units average duration of a set-up period.

The production lines should be observed for extended periods of time. and installation of new components is estimated at a total of $100. Fabrication. purchase. with one sensor located just above the conveyor line at the bottom of the glassware and the second sensor located at an adjustable position vertically above the bottom sensor.000. The system would be capable of sensing: 1) when a bottle (or a number of bottles in a pre-set period of time) has fallen. Re-design of the mechanical components is estimated to require 200 engineering hours. 3) rejecting the fallen bottles using compressed air (to prevent wasted time in the cold room handling fallen glassware).000 in engineering expenses. Based on results in other facilities. 60 . This will expose the mechanical components which need to be re-designed and may also suggest possible solutions (based on the mold operator’s present methods of repairing each problem). at $100/hr . A set of two through-beam optical sensors would be needed at each sensing station. Implementation Re-design and modification of the mechanical devices which are causing the glassware to fall over will require an in-house study.160/yr The number of hours per year which would be made available for producing additional products if the bottle tipping problems are improved is estimated as 70 hr/yr (per production line). A representation of the proposed tipped glassware sensing system is shown in AR#8.ACS = $398. for a total of $20. representing a [(70 hr/yr) / (6960 hr/yr)] x 100% = 1% productivity increase. this estimate is considered to be higher than the expected costs but is subject to change dramatically depending on the required modifications which are uncovered by the in-house study and engineering recommendations.000. 2) setting off a beacon (flashing light) to warn the line operator of the problem. Diagram #4. resulting in a total estimated project cost of $120. The mounting bracket for the sensors should allow the vertical adjustment of the top sensor to allow the system to be used for glassware of various heights. documenting the most common causes of fallen glassware on each production line and the actions taken by the mold operators to correct each type of problem. and 4) recording the pieces of fallen glassware during a pre-set period of time.

Optical sensor setup #1 emitter receiver Result from upright bottle warning beacon Power supply power supply power supply solenoid valve Inputs to PLC Inputs to PLC From sensors from sensors output to sensors Outputs from from PLC results of sensors Molding Station PLC Lehr Lehr Inputs to PLC Power supply from sensors power supply Optical sensor setup #2 emitter Output from results of sensors Result of tipped bottle receiver warning beacon Power supply power supply solenoid valve AR#8. Diagram #4: Proposed Tipped Glassware Indicator System 61 .

The simple payback period can be calculated with the following equation: Payback Period = (Implementation Cost) / ACS = ($120. only the bottom beam will be interrupted and a signal will be sent to the PLC which. two solenoid air valves and four through-beam optical sensors would be required to place two sensing stations on a production line. The approximate cost for the components are $860 for the PLC. This is shown in the “Optical sensor set-up #1” box in Diagram #4. $148 each for the warning beacons. $49 each for the solenoid valves.566 per production line. or $32. If a bottle has fallen.094) / ($398. Modifications to the existing compressed air line to allow the use of the solenoid controlled compressed air bottle rejecters would cost an additional $500 per system.160/yr) = ($152. One PLC can control at least two of the sensing stations. will: 1) switch on the beacon. and 3) add to the count of fallen glassware.000 + $32.094 for 9 production lines.If a bottle is upright.4 years (5 months) 62 . Hence. This is shown in the “Optical sensor set-up #2” box in Diagram #4. in turn. the total installed cost for the fallen bottle sensing system would be $3.160/yr) Payback Period = 0. two warning beacons. and $203 each for the optical sensors. 2) momentarily open the solenoid valve on the compressed air nozzle (to blow the fallen bottle off of the conveyor). The purchase and installation of a programmable logic controller.094) / ($398. Implementation will also require the fabrication of adjustable mounting brackets (for the optical sensors) which can be created in the company machine shop. An approximate cost for the design and fabrication of the sensor mounting assembly is estimated at $1000. the beam from both sensors will be interrupted and no action will be taken by the programmable logic controller (PLC).

Assessment Recommendation No. If the gaskets have any type of defect or did not mold properly to the part. the rubber gasket is then removed and placed back into the rubber melt to be reused. One operator explained that he is able to produce less defects because he realigns the machines before each of his shifts. The other 21 gaskets are removed. Workers take the gaskets while they are hot and mold them onto the parts to allow the gasket to cool and solidify. The operators that realign the machines have an acceptance rate of about 105 out of 120. The experienced workers do not offer to teach all the new operators because they feel it will hurt the incentives that they receive. The part also gets sent back and has to go through the process again. re-melted.67 years (8 months) Existing Practice The plant receives unfinished automotive parts from other companies and is contracted to make and attach rubber gaskets onto the different automotive parts. The average worker applies 120 gaskets an hour to the automotive parts and approximately 99 of the gaskets pass the final inspection. He was taught how to do this by another operator but there is no company procedure to teach the newer operators how to realign the machines. and remolded so that they can be re-applied to other parts. The operators who don't realign their machine have an acceptance rate of 99 out of 120. All the gaskets that don't meet standards are recycled and all the parts without gaskets are cycled through the process until they receive an acceptable gasket.74 per gasket. Each worker that applies the gaskets receives incentives determined by the average amount of acceptable gaskets that they can attach per day. 63 . The contracted rate the company receives for making and attaching the gaskets is an average of $0. All the inspection is done by separate personnel to ensure that there are no unacceptable gaskets being allowed to be packaged. 9 Develop Standard Procedures to Improve Internal Yields Assessment Recommendation Summary Estimated Cost Savings = $95.881 Estimated Payback Period = 0. After the gaskets have cooled the parts receive a final inspection before being packed for shipping. The gaskets are attached to the parts so the parts can be packaged and shipped to the retailers.753 / yr Estimated Implementation Cost = $60. Several of the more experienced operators are able to receive much higher incentives than the rest because of their larger acceptance rates.

This can be determined by the following equation: API = IPR . the internal defect rate (defects which occur within the process) was found to be about twenty percent for most operators.OPR) NWS = number of workers per shift NOS = number of shifts operating HPS = number of hours per shift DPY = number of days per year in operation OPR = old average production rate. The re-melting ensures that there is no wasted material.166 hrs/alignment)(105 units/hr) ATB = 199. Have the technician develop a company procedure for realigning the machines so all the operators can realign the machines before their shifts.399 units/yr. then twenty percent of the operator's time and the energy required to melt the rubber are wasted.120 units per year ATB = annual production lost due to aligning machines before each shift ATB = NOS x NWS x DPY x TTA x NPR TTA = time required to align machine each time ATB = (2 shifts)(22 workers/shift)(260 days/yr.)(0. will be the increased amount of acceptable units per hour that the operators will be able to produce. 64 . units per hour NPR = new average production rate.ATB where. The company has a low shipped defect rate because it inspects every gasket before packaging and removes all the bad gaskets to be re-melted. units per hour IPR = (22) (2 shifts) (8 hours/day/shift) (260 days/yr) (105 -99)(units/hr) IPR = 549. The realignment alone will increase the acceptance rate of the gaskets by approximately 6 percent. Anticipated Savings The annual increased production. However. but if twenty percent of the gaskets have to be removed and re-melted. API.Recommended Action Use the knowledge of the best machine technician to help reduce the internal scrap rate of gaskets for the less experienced operators. IPR = new production possible from increased rate IPR = NWS x NOS x HPS x DPY x (NPR .

There will be no additional labor needed to produce these additional units so the cost of the labor per unit will be zero.Hence. The cost of this production time can be determined as follows: PLI = PDT + TCP where PDT = production lost due to down time for training PDT = DPD x PPD DPD = number of days production will be down PPD = production per day 65 .721 units per yr. the profit on the additional gaskets was calculated to be 37% because of the absence of labor costs. It should be noted that the machine maintenance and energy costs per acceptable part will also decrease and contribute to the above savings. will be the additional profit earned from the increased output of gaskets.74/unit) (37 % ) ACS = $95. The profit per gasket will now include the money that was budgeted to go toward the labor of the gasket because the additional gaskets have no labor costs. we have neglected these extra savings. the annual increased production will be: API = (549. Implementation The production lost due to implementation. PLI. ACS.) API = 349.721 units/yr) ($0.) . The annual total cost savings.(199.120 units per yr. ACS = API x PPU x PM PPU = price received per unit of output PM = profit margin ACS = ( 349.399 units per yr. will be the time that the production is down for the training of operators and the time the experienced operators need to create the standard operating procedures. In an effort to be conservative.753 / yr. Estimating the existing profit margin to be 10%. This will result in an increased profit margin.

Payback Period = 0. ITC = PLI x PPU ITC = ( 82.) Payback Period = Implementation / API = $60.272 units The total cost of implementation.74/ unit) ITC = $60.881 (The number above is higher than the actual costs because it includes raw material and energy costs which wouldn’t be increased during production down time. ITC.272 units ) ($0.472 units TCP = production lost from operator working on standard procedures TCP = NOF x TPR x TWP NOF = number of operators working on procedures TPR = production rate for these operators TWP = time spent working on procedures TCP = (4 operators) ( 105 units / hr) (40 hrs) TCP = 16. will be equal to the cost of the units lost.PDT = (2 days) (32.753 / yr.800 units Hence.736 units/ day) PDT = 65. the production lost from implementation is: PLI = 65.472 units + 16.881 / $95.800 units PLI = 82.67 years (8 months) 66 .

labor costs. however. These are ARs which can be related to unwanted shut downs of the assembly/production lines. 67 . Linclon Electric Company. If the company cannot (will not) indicate the cost per hour of production downtime it can be easily estimated with normally obtained data. i.e. Evaluating Electric Motors. Ohio. sub-categories of PM which can form the basis of useful recommendations and which can be presented in a way likely to provoke management into implementing them.000/hour $87. raw material costs. Jean. operating hours.Preventative/Predictive Maintenance (PM) Introduction There are many economic analyses which point out the value of PM but they are usually of a complexity and detail to make them useless for the IAC director during a one day audit. These generally fall under the heading of risk management which is important to the manufacturer but difficult to properly assess during a one day audit. Examples of costs for downtimes in various industries are summarized in the following table.000/hour $30. There are. Cleveland.000/hour $100.000/hour $200.000/hour Questions to Ask • Are there shutdowns of the production process? • Are these shutdowns unscheduled? • What are the duration and frequencies of these shutdowns? • What are the reasons for the unscheduled stoppages? • What is the cost/hour of production downtime? 7Revelt. but we expect that the greatest cost savings will result from reduced downtime. Savings may be present in terms of reduced energy costs and repair costs from improved maintenance practices . annual sales. etc.7 Estimated Downtime Costs for Selected Industries Forest Industries Food Processing Petroleum & Chemical Metal Casting Automotive $7.

• ELIMINATE SHUT-DOWNS OF CONTROLS DUE TO OVERHEATING • TREND MOTOR TEMPERATURES AND VIBRATIONS LEVELS TO PREDICT MOTOR FAILURE 68 . Since the shut-downs are usually documented by the line foreman or other management. The scheduled shut-downs should be investigated to see if they would benefit from "quick change" approaches. it is possible to identify the cause of the shut-downs and their duration. The rewards for recommendations which can reduce or eliminate these shut-downs can be reported with some confidence and be logically defended. Related ARs Two case studies are included under this heading.Symptoms/Indicators This type of recommendation will probably only be identified by discussion with plant personnel as the occurrence of an unscheduled shut-down while you are present is unlikely. but asking questions may elicit an entirely different AR than the two we present here.

these controls shut down whenever the internal temperature in the cabinets exceed 85˚F. This results in even longer production shutdowns of up to 7 hours. Common engineering practice is to design cooling equipment to provide the desired room temperatures for 97. indicating that the cooling equipment for the room is undersized (no additional heat generating equipment has been added to the room). the doors to the cabinet are left open and fans are placed in the room until the room temperature becomes cool enough to allow the cabinet doors to be closed again.5% of the cooling season (i. the computer sometimes shuts down during second or third shift when the available staff is not trained to fix the problem.e. The cost of lost production when a line is shut down is estimated to be about $632/hr per production line..” According to a plant electrician. the cabinet is opened and a reset button must be pressed. The minimum shutdown period consists of 15 minutes to re-start the computer and at least another 30 minutes to re-start the production line. According to a plant electrician. several computer systems “crashed” (shut down) because the internal temperature in the computer control cabinets exceeded the maximum allowable cabinet temperature. the associated production line stops.09 years (1 month) Existing Practice and Observation During the assessment visit.5% of the cooling hours. To prevent another shutdown. When these controls shut down. about 16 hours of production line shutdowns were caused by these cabinets overheating in 1995.112/yr Estimated Implementation Cost = $812 Simple Payback Period = 0. for 2.Assessment Recommendation No. There are two computer controls which are most susceptible to overheating shutdowns. One is referred to as the “516 Forming Controller” and the other is the “570 Electronic Commander. the doors are closed as soon as the outdoor temperature is low enough for the HVAC system to maintain the desired room temperature. a typical system is undersized and will not be able to maintain the 69 . To avoid dust build-up in the cabinets. Once the problem is traced to the computer cabinet. This problem has existed during very hot weather since the systems were installed. 10 Eliminate Shutdowns of Controls Due to Overheating Assessment Recommendation Summary Estimated Productivity Savings = 16 hrs/yr Estimated Cost Savings = $10. In addition. Both are located in the Process Control/Computer Room (see Figure 1).

A standard operating procedure should be written by personnel on the electrical staff who are presently trained to deal with these problems. should be attached to the cabinets to minimize time wasted searching for someone who is qualified to correct the problem. Since the shutdowns are said to occur when the internal cabinet temperature exceeds 85˚F. neglecting the potential costs in lost production caused by the room overheating. ALPT = annual lost production time due to overheated computer controls (for all production lines combined). A list of these staff members. This will minimize lost production time. the warning light will flash indicating to the technicians in the control room that the cabinet should be opened in order to prevent a production shutdown. Anticipated Savings The annual cost savings. can be calculated as follows: ACS = ALPT x SLR where. the sensor can be installed inside the cabinet and wired to a warning light which can be installed on the cabinet exterior (or another. In addition to either of the recommendations above. The existing cooling equipment may have been sized in this manner. ACS. control room personnel or someone on the electrical staff for all shifts should be trained on how to get the computer system back on-line whenever a shutdown due to overheating occurs. This procedure should be presented to all qualified staff who may be in the facility when this problem arises. The sensor can be set to send a signal to the warning light when the internal temperature of the cabinet exceeds 80˚F. Recommended Action Eliminate costly production shutdowns due to overheating computer control cabinets by installing temperature sensors and warning lights on the cabinets. $/hr (per production line) 70 .desired room temperatures). hrs/yr SLR = shutdown loss rate. When this temperature is exceeded. more visually noticeable location). A more expensive solution would be to install additional cooling equipment to ensure that the room remains cool enough during all hours of the year.

112/yr) Payback Period = 0. Other feasible options may include: 1) increasing the cooling capacity of the existing cooling system (install an additional cooling unit). The material costs for these items are shown in the table below. a warning beacon.112/yr Implementation For each of the two computer control cabinets. 71 . This system is shown on the following page. of Warning Systems Needed 2 2 2 2 2 2 Total Cost $230 $172 $30 $50 $330 $812 Item Description Temperature Sensor Warning Beacon 5 Amp Relay AC/DC voltage adapter Labor (6 man-hours) Total Hence. Unit Cost $115 $86 $15 $25 $165 $406 No.Thus. implementation of the overheating warning system will require the purchase and installation of a temperature sensor. and an AC/DC voltage adapter. These options would be more expensive than the proposed warning system but would likely also result in a return on the invested capital in less than two years.50 per hour. or 2) rearranging the cooling system supply and return air ducts to provide more efficient cooling. or $165 per system. The estimated installation for each system will require about 6 hours at $27.1 years (about 1 month) As mentioned previously. there are other alternatives to solving this problem and eliminating costly production shutdowns which occur as a result of overheated computer controls. The bottom line is: the control shutdowns are economically avoidable and there are a number of options available. The resulting total approximated installation cost is $812. Payback Period = (Implementation Cost) / ACS = ($812) / ($10. a 5 amp relay. ACS ACS = (16 hr/yr)($632/hr) = $10.

Proposed Warning System Ac/ Dc voltage adaptor (power supply ) 5 Amp relay switch Temperature Sensor 69.4 C Warning Beacon Computer Control Cabinet Computer Control Cabinet 72 .

Savings for each of the above were estimated as follows: 73 . 2) Reduced motor rewind costs.2 years (about 2 months) Existing Practice and Observation Presently. and the furnace air supply fans. cooling fans. motors and process equipment operate in a very hot environment which contributes to shortened component lives and equipment failure rates which are higher than normal .350 hp. 11 Begin a Predictive / Preventive Maintenance Program Assessment Recommendation Summary Estimated Cost Savings = $21. As a result. Anticipated Savings Cost savings can result from three areas: 1) Reduced un-planned process downtime. and motors are repaired only when failure occurs. including air compressors. thus allowing the avoidance of costly process downtime. there are about 20 motors which are critical to production operations. The combined ratings of these motors total 3. Recommended Action Establish a predictive/preventive maintenance program which will include periodically cleaning equipment and taking measurements on critical process equipment which will indicate potential problems and allow the scheduling of maintenance and repairs to a convenient time. An outside consultant can be hired to perform periodic measurements and/or organize and train your staff to perform them. and 3) Reduced motor electricity costs.Assessment Recommendation No. Neglecting small motors (conveyor motors.200 Simple Payback Period = 0.). In addition. very little preventive maintenance is performed at the facility due to a stated lack of manpower.353/yr Estimated Implementation Cost = $4. etc. some motors and process equipment were observed to be very dirty and poorly maintained. These factors combine to result in unexpected (and costly) process downtimes.

6) installing and aligning the replacement.) = (3 failures/yr) x (8 hrs/failure) x ($632/hr) Production Cost Savings = $15. Utility representatives have indicated that in a survey of facilities with no preventive maintenance programs. . The average cost of a motor rewind for this facility was estimated as: Ave. 2) electrical disconnection. Depending on the size of the motor. + N800 x RWC800 ) / NT where Nn RWCn NT = number of motors at the facility with horsepower “n”. . motor replacement could take much longer. no units = total number of motors (considered in this analysis) at the facility. . and the nature of the production line. and 7) restarting the process line. It is assumed that similar results can be achieved at this facility. . the estimated production cost savings due to implementing a preventive maintenance program is: Production Cost Savings = (Motor Failures/yr) x (Lost Prod. and assuming there are 3 un-planned motor failures per year on critical process motors. + Nn x RWCn + . Cost of Rewind = ( N40 x RWC40 + .1) Reduced Un-Planned Production Downtime: According to a survey of maintenance references and consultants. labor union requirements. availability of a replacement motor. 3) unbolting. . Since records of motor repairs and costs were not available. x (Cost of Lost Prod. Using 8 hours per replacement. . 4) motor removal. including: 1) accessing the motor. Time/Failure) . it takes about 8 hours to remove and replace a failed production motor. no units = estimated cost of rewinding a motor with horsepower “n”. the number of rewinds was reduced to about 20% of the total. After preventive maintenance programs were established. 5) acquiring the replacement motor.168/yr 2) Reduced motor rewind costs. no units 74 . motor rewinds represented 85% of the total number of motor repairs (on average). the table below was used to obtain an average cost per motor repair for both the existing maintenance methods and after a preventive maintenance program has been established.

Katz. Average Repair Cost per Motor with P.M.258/rewind Estimated Average Cost of Reconditioning a Motor (for this facility) = $752/recondition Then. program are estimated as: P.500 $1.578 Recondition vs.15 x $752/recondition + 0.. hp 40 60 75 100 125 250 800 Cost of Rewind 8 $1.128/yr and the repair costs after implementing a P. 75 .944 $5.Motor Size. varnishing.032/motor) = $8.295 $1. S.212/yr 8 9 Nadel.. Greenberg.610 $1.. Rewind Premium $680 $864 $1. Repair Costs = (4 motors/year)($1. S.735 The average cost of reconditioning (bearing replacement.915 $7. Assuming the cost of rewinding a motor is 3 times that of reconditioning a motor.M. Existing Average Repair Cost per Motor = 0. Shepard. p.020 Cost of Reconditioning 9 $340 $431 $500 $536 $606 $971 $2.M.074 $1.M. Energy Efficient Motor Systems. The results for both are: Estimated Average Cost of a Motor Rewind (for this facility) = $2. etc.053/repair For four motor repairs per year.) program is established.820 $2.20 x $2. alignment. G.157 $1.. A.032/repair and after a preventive maintenance (P. M. cleaning.053/motor) = $4. 264.214 $1.000 $1. Repair Costs = (Motors Repaired/yr) x (Average Repair Cost) P.85 x $2. the existing repair costs are estimated as: Existing Repair Costs = (Motors Repaired/yr) x (Average Repair Cost) Existing Repair Costs = (4 motors/year)($2.) a motor for this facility was estimated similarly. and de Almeida.. = $1. = 0.258/rewind Average Repair Cost per Motor with P.80 x $752/recondition + 0.M.258/rewind Existing Average Repair Cost per Motor = $2.M.

vibration. power.699/yr = $28.P.0308/kWh) Energy Cost Savings = $9. Repair Costs Reduced Repair Costs = $8.887 kWh/yr) x ($0. these savings could result from: • Improved lubrication • Proper alignment and balancing • Correction of voltage imbalances • Reduced motor temperatures • Reduced efficiency losses caused by motor rewinds and failures • Improved drive system performance Energy savings are estimated as: Energy Cost Savings = (Total hp of Motors Considered) x (Load Factor) x (Operating Hours) .0308/kWh) = (314.916/yr 3) Reduced Motor Electricity Costs. Among other factors. .75) x (8400 hr/yr) x (0.916/yr + $9. .Hence.M. the annual reduced motor repair costs are estimated as: Reduced Repair Costs = Existing Repair Costs .746 kW/hp) x (Elec.02) x (0. and temperature measurements. and will assume these savings to be 2%.168/yr + $3.128/yr . including voltage. Cases have been documented where the efficiency improvement resulting from improved maintenance practices was as high as 10-15%.M. x (Percent Savings) x (0. program.746 kW/hp) x ($0. .783/yr 76 . we recognize that efficiency improvements would most likely occur as a result of implementing a P.699/yr Total Cost Savings: The total estimated annual cost savings provided by instituting a preventive maintenance program for your motor systems is: Total Cost Savings = Production Cost Savings + Reduced Repair Costs + Energy Cost Savings Total Cost Savings = $15. Usage Cost) = (3. Although it is difficult to accurately estimate motor system efficiency improvements which are achievable in your facility without performing a complete survey of the motor systems.212/yr = $3.350 hp) x (0. .$4.

353/yr) = 0. The electrical instrumentation required should already be a part of the existing instrument supply. would cost $1200/yr. the in-house labor costs would be (1 hrs/month/motor) x (20 motors) x (12 month/yr) x ($25.783/yr .$7.230/yr + $1. together. The bi-annual inspections would each require one day and.200/yr = $7. The initial training is estimated to require 5 days at $600/day. Additional material costs for items such as filters and lubrication will be greater than normal initially.200 = $4.96/man-hour) = $6. for a total of $3000. The above costs are of two types: 1) initial investment.230/yr.430/yr = $21. The continuing investment is estimated to be $6.200) / ($21. but it is assumed that over time these costs will be negligible in comparison to benefits resulting from reduced repair costs and increased operating efficiencies.430/yr and the initial investment is estimated to be $3. and about 30 motors can be diagnosed per consulting day. and 2) continuing investment.200. respectively.000 + $1.2 years (about 2 months) 77 .Implementation The costs of implementing a preventive maintenance program were estimated as follows: 1) In-house Labor: Estimating that it would require 2 hours of an electrician’s time per month per motor to perform preventive maintenance procedures. Subtracting the continuing investment from the total cost savings yields: Net Cost Savings = $28.353/yr The simple payback period for implementing a motor preventive maintenance program would be: Payback = ($4. 2) Materials: A vibration meter and temperature probe can each be purchased for about $1000 and $200. then provide on-going inspections bi-annually. 3) Consulting Costs: It is assumed that a preventive maintenance consultant will be required to provide initial support and training for the program. The consulting rate is about $600 per day.


Labor Optimization
Labor cost saving opportunities arise when worker’s Time or Skills Are UnderUtilized. Many factories have operations that have remained unchanged for decades. Workers are performing tasks better performed by automated equipment, such as inspecting or packaging. Some are being asked to move product excessive distances, wasting time and labor dollars. Ineffective production leads to a disinterested, discouraged and inefficient work force. Workers perform less than ideally when (they feel) their efforts have little or no effect on the result. Examples of this include unclear definitions of defects, duplicative inspection, and equipment that goes out of adjustment as soon as it is corrected. In order to apply new technologies, workers need to be trained in their operation. Training of the existing work force can meet company's needs without the expense of hiring of new personnel. Manufacturers sometimes have idle workers because work rules don't allow them to perform different tasks. It is not uncommon to find manufacturers that are not keeping up with maintenance, because the maintenance crew is busy "putting out fires"; yet other workers have time to spare. Some of these firms are even in a hiring mode, intending to introduce more skilled labor while existing personnel are under-utilized. This is particularly troublesome when the firm does not need full time help. In these cases, many companies will run overtime shifts to meet production levels. Development of Standard Operating Procedures will allow manufacturers to demystify the process/procedure and train or cross-train existing personnel to perform needed operations efficiently. Particular attention should be paid to the employee who is an "artist" or an "expert". The existence and acceptance of this practice is a guarantee of variance in production, and an obstacle to training personnel. For example, a factory that had "expert" set-up men who took as much as eight hours to get a process running acceptably. When asked what the particular settings were, they responded that there were no dials for the settings, and those settings were not prescribed, but adjusted by "feel.” After the set-up was standardized and the company conducted training courses, other workers were able to set up the process in half the time, markedly increasing the yield of the production line. Counterproductive Incentives have also been a culprit in the effort to optimize labor. Arguments about which end of the line produced a defect, and incentives that encourage an employee to keep "secrets" of production to himself/herself are common. Elimination or modification of the incentive in doubt will allow all workers to share a common goal, increased 79

quality production, and encourage sharing of successful experiences. Piece-work is a particularly insidious danger. A manufacturer of cast steel valves for the nuclear power industry had three separate operations performed on the part before checking to see if the casting was acceptable. The reason? The machinists got paid for piece-work. If these machinists had only worked on good castings, the production rate of the factory would have increased dramatically, reducing the labor cost, and therefore the overall cost of a piece. Most workers, if given the proper information and tools, would prefer to produce a quality product.

• What percentage of the cost of production is labor? Direct / Indirect? • What is the pay scale? • What is the pay premium for second and third shifts? • Do you run overtime due to the lack of skilled personnel? • What is the cost of overtime? • Is this a union shop? • Do you ever work overtime to meet production goals? Why? • Are you lacking labor in a particular skill? • Are you keeping up with preventative maintenance?

• Idle workers, machines, or tools • Ineffective production, or operations • Excessive transportation or motion (walking, etc.) • Excessive hand labor

Related ARs


Assessment Recommendation No. 12 Install Automated Glassware Packing Equipment Assessment Recommendation Summary Estimated Cost Savings = $1,109,432/yr Estimated Implementation Cost = $1,600,000 Simple Payback Period = 1.44 years (17 months)

Existing Practice and Observation Various grades (qualities) of glass are sold, with the quality depending on the customer’s standards. The following table is a breakdown of the percentage of total production for each glass quality grade at this facility during the month prior our assessment, including the percentage of bottles packaged for each grade. Selection (Grade) A+ A B+ B C+ C CTotals Percent of Sales 0.17 0.55 22.30 41.49 1.66 33.19 0.64 100% Percent Packaged 49.19 46.70 59.44 57.08 71.31 67.38 70.59 61.3%

Presently, 100% of the glassware exiting the Lehrs is manually inspected and packed. According to management personnel in the quality assurance department, glassware requiring a grade quality of “B” or lower could be packaged by automatic packaging machines--this is the method used in some other cosmetic glassware manufacturing facilities. According to the table above, about 77% of the products sold during the month prior to our assessment could have been packaged using an automatic packing machine.


The present actions of each inspector/packer include: 1) removing the glassware from the conveyor, 2) examining the glassware for small cracks by holding it in front of a light at various angles, 3) placing the good pieces in boxes for shipping and the rejected pieces back on the conveyor to be dumped onto the cullet collection piles in the basement, 4) taping or gluing the filled boxes shut, and 5) retrieving new boxes and packaging materials. Because many of the defects are very small and would be difficult to consistently and reliably detect automatically using optical sensors, 100% manual inspection is believed by management to be a “necessary evil” to ensure that only quality products are shipped to customers. However, the inspecting process occupies less than 50% of the time of an inspector/packer. Almost half of the company’s employees work in the cold room inspecting and packaging operations (289 out of 600 employees). According to management personnel in the quality assurance department, inspector/packers are assigned to each production line according to the speed of the production line. It is estimated (by management) that each person can inspect 22 to 25 pieces per minute, and the typical production line has at least 4 inspector/packers working at a time. As many as 7 inspector/packers at a time are assigned to the faster lines. Furnace #7 and the four connected production lines are used primarily to produce the high volume/lower grade (quality) products which would be best suited for automatic packing. In addition, plans have been made to increase the capacity (tons/day) of furnace #7 in the near future, making the installation of automatic packers even more attractive Recommended Action Install automatic glassware packaging machines on the Furnace #7 production lines.

Since the small nature of many of the common defects are thought to necessitate manual inspections, the value of the inspector/packer’s time should be maximized by using them primarily to inspect glassware. With a case packer installed, the workers on the conveyor line will be able to devote most of their time to the valuable inspecting process. 82

It is assumed that a properly designed packaging machine will be capable of eliminating at least half of the present labor efforts (or nearly all of the present packaging labor). There are approximately 6 shape changes per production line per month. After the initial system has been properly adjusted and has proven its worth. for four shifts.000/yr with a 35% overhead rate.35 x $30.500/yr.000/yr = $40. or 0. Each packaging machine will allow the re-assignment of two laborers per shift. the annual cost to the company for each inspector/packer is 1. Of course. Based on previous experience with similar packaging equipment in similar applications.5 x 4 workers/line = 2 workers/line. each re-adjustment will require 30 minutes of a skilled operator’s time.000 and. According to manufacturer’s literature. personnel in the quality assurance department at the facility felt that a reduction from 7 to 3 workers on one line would be reasonable. This is viewed to be a conservative assumption.96/hr. The average annual earnings for an inspector/packer is $30. More than 50% of the inspector/packers’ time is presently spent performing actions associated with packaging. layers per box. based on interviews with management in the quality assurance department and observations during our on-site assessment. based on $40. only one machine should be installed initially to allow a performance evaluation and design improvement period. the remaining machines should be installed. Adjustments will be necessary when the number of pieces per box. piece shape and size.Anticipated Savings This analysis includes the following assumptions: • Four packaging machines will be installed. with an overhead rate of 35%. • • • 83 . The typical number of inspector/packers presently working on each production line is 4. or box size changes. This assumption is based on installing the packing machines on the lines which produce the high volume/lower quality glassware. Also. the equivalent hourly rate of a skilled packing machine set-up technician is assumed to be $25. one on each of the #7 furnace production lines. and each shape change will require the packaging machine to be re-adjusted.

units = people/line/shift = number of shifts during which the packer would be used. ACS. 0. units = hr/change = hourly rate for a packing machine set-up technician. 0. units = $/yr According to manufacturer’s information.39/kW-month EUR = average cost of electricity usage. 8400 hrs/yr EDR = average cost of electric demand.50 (no units) Vf = volumetric flow of air to a packing machine. These savings were estimated as follows: ACS = NP x [ LE x NS x CPL . The annual electric operating cost for each packing machine. each machine requires a maximum of 10 kW of electric heat for the hot-melt box closing system and 50 cfm of 100 psig compressed air. no units UF = usage fraction for electric heaters (fraction of time operating).0308/kWh 84 . may be estimated using the following equation: MEC = [ KW x UF + Vf x HP x K ] x [ EDR x (12 months/yr) + HRS x EUR ] where KW = rating of electric heaters. units = $/hr = annual electric operating cost for a packing machine. manual operation of a packing machine is estimated to take 25% of a laborer’s time (for keeping the machines loaded with cardboard and glue. In addition. MEC. scfm HP = power required for a centrifugal compressor to produce compressed air at 100 psig.). no units = laborer equivalence for each automatic packer (number of laborers it would take to perform the work of one automated packer). units = shifts = annual cost per laborer. 0.The annual cost savings.23 hp/scfm K = conversion constant.MSC x (12 months/yr) x ST x THR . $0. etc. units = $/yr/person = monthly shape changes per production line. clearing an occasional jam. achieved by installing automatic packaging equipment will be due to avoiding labor expenses which are required when the products are packaged manually.MOC] where NP LE MLR NS CPL MSC ST THR MEC = number of automated packers to be installed.746 kW/hp HRS = annual hours of operation. $10. units = people/line/shift = labor required for operating a packing machine. the electric heaters are on about 50% of the time. units = changes/month/line = packing machine set-up time per shape change. During normal operation.

207/yr Thus. Fairfield.358/yr) ] ACS = $1.207) ] = (4)[ ($283. 85 . This additional expense has been considered and is included in the estimated implementation costs.0308/kWh) ] = [ ($1.500) . include corrugated spacers between the glassware. The conveyors which presently extend from the Lehr exits to the opening of the cullet trenches will most likely need to be replaced or supplemented by conveyors designed to properly feed the automatic packing machine.064 kWh/yr)($0.23)(0. MEC = [ (10)(0.694/yr) + ($3.207/yr) ] = (4)[ ($277.50) + (50)(0.96) .39)(12) + (8400)(0.(6)(12)(0. the estimated annual cost savings can be calculated as follows: ACS = NP x [ ( LE .MSC x (12 months/yr) x ST x THR .(5. 10 Supermatic Package Machinery Inc..5)(25.109. organize the inspected bottles into the desired grid.($5. Adjustability is required for this application due to the variety of sizes and shapes of glassware which are manufactured on each production line.0308) ] = [ (163 kW-month/yr)($10. NJ.39/kW-month) + (114.25)(4)(40.513/yr) ] MEC = $5.($935/yr) .MLR) x NS x CPL .0.MEC] = (4)[ (2 . (201)575-6350. pack the glassware in the boxes in single or multiple layers.746) ] x [ (10. and eject the packed box onto a finished goods conveyor. glue or tape the box closed.Substituting the appropriate values.10 Case packers are commonly used in the glass container and cosmetics industries and machines are available which have the capability of being used for a wide range of products.500/yr) .432/yr Implementation Case packers are available which can perform all of the following operations: • • • • • • construct the boxes.

or 2) for the products with lower quality requirements. 11 12 Supermatic Package Machinery Inc.000 and the total cost for installing the packaging systems on 4 production lines would be about $1.600. NJ. According to data obtained from the quality assurance department.432/yr) = 1. 36. based on descriptions of the existing conditions at this facility. requiring manual inspections only for detecting small scale defects which can’t be detected automatically. The installed cost for the conveyor system was estimated to be about $50. By using a conveyor system which takes the rows of glassware exiting the Lehr and removes them in single file lines. Blue Anchor. (201)575-6350..000)/($1. Installed cost of a fully adjustable case packer capable of packaging glassware in multiple layers of 12.109.4 yrs (17 months) Automatic inspection/rejection methods should also be considered when designing the new packaging and conveyor system. So the installed cost per line will be about $400. 86 . Savings and implementation costs for automatic inspecting have not been considered in this recommendation. (800)257-8581. Estimates of implementation costs were obtained from equipment manufacturers.600.Manufacturers of case packers11 and conveyor systems12 which are commonly used in the cosmetics industry were contacted. determine if containers are acceptable. Each company will custom design their machinery to fit a specific customer’s needs and will test their equipment using the customer’s products before shipping the equipment to the customer. optical inspection systems could be used to automatically : 1) reject glassware with large defects.000. Garvey Corporation. about 40% of the rejects have large scale defects which would be detectable by optical inspection devices. Installation of the equipment can also be performed by technicians from the equipment vendors. 24.000. This could provide additional savings by reducing the manual labor required for inspecting. The simple payback period would be: Payback = (Imp Cost)/(Cost Savings) = ($1.000. or 48 bottles per layer was estimated to be about $350. Fairfield. NJ.

2 units/minute. The bulbs are taken to the storage room because machine A has a higher output rate than machine B and an overflow supply of bulbs will begin to develop between the two machines. This will compensate for the different production rates of the two pieces of machinery. The output from machine A is then stocked on pallets and transferred to a temporary storage area by worker 2. The installation of the magazine will reduce labor 87 . The production line is in operation for about 4992 hrs / year and machine B is in operation for all of this time.72 units/minute and machine B can operate at 5. Machine B then finishes the product and packages it for sale. Estimated Implementation Cost = $14. machine A is periodically shut down while machine B reduces excess inventory. This machine then takes the materials needed to assemble the mouthpiece of the light bulb and attaches the mouth piece to the light housing. an excess of unfinished inventory is created by machine A. For this reason. Machine A can operate at an output level of 5. 13 Install Magazine Between Machines to Reduce Costs Assessment Recommendation Summary Estimated Cost Savings = $211. When both machines are operating at full capacity. The first step in the assembly of the light bulbs is feeding the materials into machine A by worker number 1. The semi-finished products remain in this area until worker 3 transports them to machine B where they are loaded into the machine by worker 3.690 Simple Payback Period = 0. Presently. Machine A is in operation for about 95% of the production operation time (based on interviews and observations). Recommended Action Replace the present process of transporting the light bulbs from machine A to the storage area and back to machine B by linking the two machines together.704 /yr. the fourth worker transfers the light bulbs to the pallets and takes the pallets to the finished product storage area. The linkage would consist of a magazine between the two machines that would automatically shut down the first machine when the storage area in the magazine exceeded 100 light bulbs and automatically turn it back on when there are only ten light bulbs left in the magazine. Once the product is finished by machine B.Assessment Recommendation No. about 5% of the bulbs received by Machine B are defective.07 years (less than one month) Existing Practice and Observation Presently the process of assembling light bulbs is performed by four workers and two machines.

This is possible due to the replacement of the 4% defects rate caused by the intermediate transportation with an estimated 1% defect rate caused by the magazine.000 bulbs ODR = old defect rate.NDR) where UPY = units produced per year. 5% NDR = new defect rate. ADS = UPY x CPU x (ODR . CPH = cost per hour for workers (including fringe). AMHS = (MPLB . 4 MPLA = workers per line after implementation. Then that at least 80% of the defects come from either the transportation process or removing the bulbs from the machine.) x ($19.37 88 .47 MPLB = workers per line before implementation. freeing that area for other uses.requirements of this operation by eliminating the need for the two workers who are presently required to transport the light bulbs between machines. Anticipated Savings The annual reduction of man hours savings. $0. 2% CPU = average value per unit (bulb). $19. The annual savings from reduction of defects. Workers estimated that less that one percent of the light bulbs produced by machine A are defective. There will also be no more need for the temporary storage area that was previously required to house unfinished bulbs.2) x (4992 hrs/yr. the defects which occurred from the extra packing and transportation of the bulbs will be reduced.MPLA) x HRS x CPH where HRS = annual hours of operation. 1. In addition. is the reduction of two workers that are needed to work the production line. 4992 hrs/yr. ADS.560. is the savings seen from the decrease of the defect rate from the estimated present amount of 5% to about 2%. AMHS.388 /yr. 2 AMHS = (4 .47 /hr) AMHS = $194.

05 .690. and the respective costs are estimated as $3340 and $2350. construction. ACS = $211.704 Payback Period = 0.07 years ( less than one month ) 89 . or may be used for other purposes. Hence the total installed cost would be $14. ACS = AMHS + ADS ACS = $194. and installation of the magazine. It should also be noted that there will be additional indeterminable savings from the reduction in transportation costs and reduction of storage space that is required.) x ($0.316 /yr.316 /yr.ADS = (1. The total annual cost savings.388 /yr. The existing transportation of bulbs to the storage area and back requires equipment that needs to be fueled and maintained daily. Implementation Implementation requires the design.560.+ $17.690 / $211.704 /yr.000 bulbs/yr. The installation of the magazine will require two steps: the arrangement of the machinery and the connection of the magazine.0.37/bulb ) x (0. The simple payback period can be calculated with the following equation: Payback Period = Implementation cost / ACS = $14.000. and can be calculated with the following equation. is then due to the sum of the reduction of man hours savings and the reduction of defects savings. ACS. This equipment will no longer be required.02) ADS = $17. The design and construction of the magazine can be contracted to a conveyor manufacturer company and will cost approximately $9.

Existing Practice and Observation The company cannot satisfy all demands of the market. The production is not fully automated and depends on skills of different operators or craftsmen. We assume that the training can be accomplished in after work hours. thus without any loss to production but with pay to the employees. Recommended Action Cross train all the employees in different aspects of the manufacturing process so there is always somebody available with the skills necessary to keep the production running.Assessment Recommendation No. The product is expensively priced. 14 Cross-Train Existing Personnel to Avoid Lost Time Assessment Recommendation Summary Estimated Cost Savings = $24. The sale volume is not very high relative to sales in dollars because the company caters to a niche market. We propose that the company provides this training of employees on a regular basis to keep all the operators up to date all the time. there are days (on the average 5 a year.000. when somebody takes a sick day or other leave of absence there is enough work to be finished that it doesn't cause any problems.000. Rotation of the operators should be established as a practice. 90 . There is a constant backlog on received orders because the lamps are not produced fast enough. The sales are about $17.42 years (about 5 months) Background The company is a manufacturer of luxury light fixtures. Normally. There is only one shift operation at this time and because of special high level skills required the company is not successful in finding people for a possible second shift.000 Simple Payback Period = 0.000/year Estimated Implementation Cost = $10. Discussions with the supervisor revealed that the company looses approximately 5 work days every year when employees are absent due to sick leaves or other reasons. However. reflection of occasional slower production caused by the lack of trained personnel is calculated into this number) when the production has to be diverted into auxiliary work or workers are asked to go home because the key employee is missing and the job cannot be finished.

Implementation Cost = $10.000/year Implementation There is very little cost associated with the original planning and scheduling of the training.000/day) x (5 days)] .($26. we believe that it is very conservative number.000) = 0.42 years = (approximately 5 months) 91 .) People Involved = 13 Annual Time Allocated for Training = 1 week Number of Operators to Be Trained = 10 Cost of Training = (13 people) x (40 hours) x ($50.00/hr Cost to the Company = ($50. If we estimate the total cost of such activity as $10.00/hr (For the purpose of this calculation we consider $50.00/hr) = $26.00/hr rate. Fringe benefits will be paid regardless.000.000) / ($24.000/day Labor Rate = $50. since that is the direct cost to the company.00/hr) x (1.000/yr ES = [($10.4 fringe benefit) = $70.Anticipated Savings Realized Profit = $10.000/yr) = $24.000 Simple Payback = ($10.

92 .


The purpose of scheduling of all production runs is to produce parts as cheaply as possible. 94 . If performed in all sequential operations for one part or product. Scheduling and Just-in-time are closely related. and so on. While scheduling production runs in order to keep a constant throughput is a complicated matter beyond the scope of a one day assessment. Since the lighter colors are effected by the darker ones to a large degree. if the potential profit justifies the expansion. which might be quite beyond a scope of one day audit. In some cases the reorganization of work schedules could be helpful. It would usually involve cases in which the company knows that the market for their product exists. however. the cleaning operations must be performed very thoroughly and their partial elimination would lead to significant savings. steps like that involve hiring more people and thus are a considerable expense to the company.Scheduling Introduction Scheduling we want to introduce is not a scientific discipline studied by industrial engineers. The calculations involved also demand more time to process and in most cases extensive computer programming is a significant part of such undertakings as well. The illustration of this concept is documented by the "Machine Shop Scheduling" case study. What we would like to address here is something which can be done in one day visit. Of course. In one day assessment it would be extremely difficult to be able to collect all the data required for detailed calculation of optimum batch sizes. A case like that calls for either speeding up the whole production. and deliver parts quickly to their destination. we feel it is a step in the right direction. the basic ideas related to scheduling in a JIT environment can be evaluated and conveyed by an assessor within the time frame given. in printing houses it would be cleaning of cylinder blankets or spray jets. or adding a new work shift for achieving the desired output per day. As the second example of schedule changes within production we can introduce a concept of elimination of waiting for batches of products. it can free up precious resources of the company. We can use as an example painting or printing operations. keep the work load more or less constant. In painting operations it is typically cleaning of the paint guns. Better sequencing of runs from light to dark color can eliminate cleaning operations during color changes. sequencing of operations. The first type of scheduling recommendations could involve better planning in cases when changeover of certain types are involved.

Of course. But we can see quite commonly ratios of 1:100. the average would be only one week if the ratio were shortened to 2:1. As an illustration we can use an example from a plastic parts manufacturer. we have to wait only the time which is necessary to produce that one part. JIT can be applied in between different production steps. At this point the close relationship to traditional scheduling of production runs becomes obvious. If we extend the concept. There are one hundred different lots to be processed and ten machinists to do the job.Just-in-time is usually associated with lead times for a manufactured product. even 1:1000. The ratio is 10:1 and indicates that a better scheduling of jobs is necessary. That would mean only two job lots per machinist. Sometimes the lead times are in weeks. but the actual time when the part is worked on can be counted in minutes. then our target ratios are the times that these two processes take. This example also shows that there is not a magic easy way to classify the problems of productivity since the same example could be used in the "Floor Layout" section. This ratio can also be used to analyze office work. breaks. After extrusion there is a trimming operation. at the most in hours. The third ratio is number of pieces to number of work stations or operators in a line segment. the lead time for the next operation is just that long. down time. but waiting time is cut five times. This is not an average output rate. Trimming takes just three seconds but because of the lot arrangement it takes almost eight and a half hours before the last part is trimmed. The lot consists of 10 000 parts which have to be extruded. If we are talking about two operations within the process. At the shorter ratio each actual job processing takes the same amount of time as before. We will illustrate the concept using the case from the machine shop. the lead time could be shortened to the time necessary for the process. etc.. To make useful and quick analysis of a process it is possible to use ratio analysis. That is ideal and for practical purposes we would be satisfied with ratios in single digits. we can consider a component at the next manufacturing operation. If the trimming machine is moved to a physical proximity of the extrusion machine. instead of the sales rate of the finished final product. The ratio applies to a single part only. The first ratio is production lead time to work content. Consequently. If the average job takes five weeks when the ratio is 10:1. every pallet with parts waiting or being delivered long distances raises this ratio. Every idle piece. The second ratio is speed of the process to sales rate. 95 . which also includes setup times. In other words. or. in other words to get the part. ninety lots are idle waiting their turn while only ten are worked on. the ideal ratio is 1:1.

melting. identify these operations. where items are pushed through production) are most likely inefficient. The ratio differences with and without baking are enormous. The companies should be concentrating on using a pull system (production is based on orders received). The reduction might not be possible if the process cannot be modified or replaced with equally satisfying treatment but shorter in duration. However.There are specific manufacturing processes.? If the answer is YES. A good example could be baking of enamel paints. A lot of movement of parts using fork lifts is an indication of either bad scheduling. Questions to Ask • Do you have operations where different sequencing of job would eliminate some nonvalue added operations. poor floor layout. • Do you use push or pull system in your manufacturing process? • If overhead cost is too high. number of shifts. setups etc. why? • Does your product experience multiple handling or multiple inspections? Symptoms/Indicators Excess inventory and especially in-process inventory are good indicators that it should be possible to reduce both by better scheduling. • Identify processes or operations which you feel are more costly than they should be. During those times the piece is only indirectly worked on and the lead time is long. the ratio gives us a hint of where a significant potential for a reduction in time for the manufacture of a painted part exists. where long times involve annealing. such as cleaning. On the other hand. there is obviously an opportunity to shorten the bake time. Related ARs • OPTIMIZE LOT SIZES TO MINIMIZE INVENTORY CARRYING COSTS • SCHEDULING PRODUCTION RUNS TO MINIMIZE SET-UP TIMES • ADD A SECOND PRODUCTION SHIFT 96 . or exposure for a specific time to a specific substance. overtime)? • Ask questions about ratio indicators. or both. That is not to say that we perceive such a change as trivial. Push systems (speculative production. What would be the right sequencing to eliminate these operations? • Do you have large size batch operations? • What are typical leading times for your products? ("product" could also be object for the next operation) • What is the company's operating schedule (including vacations.

The lead time for the fortieth gear is apparently 480 minutes. 15 Optimize Lot Sizes to Reduce Inventory Carrying Costs Assessment Recommendation Summary Estimated Cost Savings = $61. which totals eight hours. It takes twelve minutes to drill and bore each gear. but on the average it is estimated to be $11. The company also makes other gear sets which are sold to different gear box manufacturers but also as individual units from a catalogue. but the real machining time is only twelve. This way the batch operation is completely eliminated. The company then sells the gears to A gear box manufacturer. and the operator does not have to attend the machine during those twelve minutes. he can pick up the next gear from the previous operation and have it ready when the gear on the machine is finished. The shop processes forty gears per lot. 480 minutes represents one shift and we certainly can say also one banking day. Since the boring of the gear takes twelve minutes. too.000.Assessment Recommendation No. The sales of the company are $27. had to wait forty minutes for twelve minutes of machining. it.000. Since the gear which is machined right now was at one point the fortieth in the waiting line.500. On the average the company processes 370 lots of gears per year. 97 . From that we see that the waiting time of 480 minutes is valid for all the gears. based on the size. to process all forty. The value of these forty gears varies. Existing Practice and Observation The company has a one week lead time for any size gear manufactured.524/year Estimated Implementation Cost = None Simple Payback Period = Immediate Background The machine shop performs all machining operations for steel pinion gears. The manufacturing of one gear consists of a hobbing operation from raw material and then drilling and boring operation for the bore. Recommended Action The recommended action is based on the idea that in-process inventory costs the company money. one shift.

Therefore. On the other hand if all steps of all operations are looked at and approached in a similar fashion. should a problem occur. the savings generated will be significant.. The requirement is just to change the routine of the operator.000 batch is around the whole year as in-process inventory which costs the company at least the money lost to other investments. it is important to realize that the recommendation deals only with one case of in-process inventory. If we consider a conservative rate of return for the company to be 10%. Another benefit of this approach is that each piece is inspected individually and not as a part of a batch. 98 .1) ES = $1.100/year Implementation There is not a direct implementation cost. etc. an $11. which was the most obvious and did not require any investment. Simple Payback = Immediate Conclusion Although the savings are not too much in this case. the loss is: ES = (Inventory) x (Rate of Return) ES = ($11.000 Since the company processes 370 lots a year and 480 minutes represent one day in terms of banking hours. changes in layouts of the plant. making rework necessary for just one piece instead of many.000/yr) x (0. the corrective action can be taken immediately.Anticipated Savings Value of the batch = $11.

Estimated Implementation Cost = $9. The two main types of decoration that are used on the mirrors is silk screening and attaching pictures or designs to the back of the mirror. The manufacturing process begins by cutting the mirrors into the desired shapes and sizes.690/yr. There will be extra management hired to supervise the operation on the second shift and additional security measures taken to deter internal theft. The operation of a second shift will allow the company to decrease the cost per product which can increase the profit per product or allow the product to be sold by the company at a lower price to gain a larger share of the market. 99 . 16 Add a Second Production Shift Assessment Recommendation Summary Estimated Cost Savings = $445. After production is complete the products are then packed and shipped directly to the customers. Recommended Action The recommended course of action is to add a second operating shift to the production in order to meet the excessive demand and maximize profits. At this point the mirrors are either framed or decorated by a variety of methods. The majority of workers are bussed in by the company from a neighboring city which as an abundant supply of men and women willing to work for minimum wages.107 Simple Payback Period = less than one month Existing Practice and Observation Mirrors are purchased and shipped to the plant in crates with either a polished edge finish or raw edge finish. The majority of the manufacturing process consists of the decoration of the mirrors which has to be performed by hand. One concern of management was the ability to maintain an acceptable production rate on the second shift and avoid internal theft while management was not there to watch over the operation.Assessment Recommendation No. This will allow the overall percentage of the non-production related expenses to decrease on a per mirror basis. The manufacture has not been able to meet the excessive demand for his product while operating only one shift. The fixed cost that had is being absorbed by the production of only one shift will now be able to be split up between the to shifts.

which includes the purchase and installation of a walk through metal detector.5 million )( 40% )( 10% ) .107. ATS.00.107 / $445.) ATS = $445.690/yr.Anticipated Savings The annual total benefit from the extra profit. The total implementation cost will be $9. The security system will cost $9. Payback Period = 0. The night supervisor will be required to be supervise all the operations of the second shift and maintain an acceptable production rate. can be calculated as the amount of profit generated by a second shift minus the operating costs: ATS = (TAS x PVA x APP) .(ASC + AGC) where. ATS = ( $13.107.690/yr. The security system will be monitored by one security guard. + $34. TAS = total annual sales PVA = percentage of value added to the product APP = annual percentage of profit ASC = annual cost of the night supervisor (including benefits) AGC = annual cost of the security guard (including benefits) Hence the additional profit will be.02 years (less than one month) 100 . Payback Period = Implementation cost / ATS = $9.450/yr.860/yr. Implementation The implementation of this assessment will require the addition of a night supervisor to monitor the second shift and the installation of a security system. Only one system will be required at the main entrance because that is the only entrance the employees can use. The premium costs for labor on the second shift were neglected due the amount of available labor.($59.

Questions to Ask • How often are raw material deliveries received? • Are raw materials delivered based on the supplier’s convenience or planned needs at your facility? • Inventoried quantities and values of raw materials? • How long do raw materials or purchased components remain at your facility before they are used? Symptoms/Indicators • Large amounts of time/labor spent mixing. if the usage volumes for a raw material are large but deliveries are small and frequent. In these cases. it may be beneficial to purchase the materials in bulk to receive volume discounting. in-house material handling.Purchasing Introduction Improvements in raw material and component purchasing procedures can lead to significantly reduced purchasing. the most likely recommendations related to purchasing will involve cases where extensive efforts handling purchased goods are observed. the bulk discount would have to be greater than the increased carrying costs incurred due to the requirement to house more raw materials at the manufacturing facility at one time. and inventory carrying costs. raw material and purchased component inventories should be surveyed. or unpackaging raw materials • Large volumes of raw materials or purchased components in inventory • Labor efforts spent transporting raw materials or purchased components (multiple transportations of raw materials and purchased components occur because purchased goods are not received Just-In-Time) 101 . In this case. negotiating delivery methods or schedules which will reduce the in-house costs. During the plant assessment. If significant labor efforts are spent measuring materials. If existing delivery schedules require significant floor space and labor efforts for handling raw materials. For the IAC program. Finally. it may be profitable to switch to a just-in-time delivery schedule. it may be possible for the IAC client to work with their suppliers. allowing a reduction of in-house labor. paying close attention to any in-house labor efforts associated with handling those materials. measuring. it may be possible to negotiate with material suppliers to provide their products in premeasured quantities.


This operation requires about 15 hours per week. On average. Estimated Payback Period = Immediate Payback Existing Practice and Observation The plant receives deliveries of wood chips by truck from the vendor according to the vendor’s schedule.5 hours to remove enough wood chips from the storage pit when it is full. The wood chips are dumped into the storage pit until the cyclone is ready to pull them out of the pit and transport them into the factory for use in the process. The storage shed can still be used as a buffer so if there are any problems with the shipments the extra wood chips could be used until the deliveries are resumed. The wood chips are then moved back into the pit by an operator with a front-end loader. When the storage pit becomes over-filled the trucks that are making the deliveries are unable to unload into the pit. 103 . If the level of the wood chips gets too low. 17 Schedule Wood Chip Deliveries According to Demand Assessment Recommendation Summary Estimated Cost Savings = $28. This task is performed by a 90 hp blower which forces the chips up through a silo and into a storage shed. Recommended Action Have the supplier deliver the wood chips according to a fixed schedule. Savings on labor and energy costs will result. It takes the blower approximately 1. This will eliminate the present need to have the wood chips moved from the storage pit to the storage shed and back to the storage pit.768 / yr. The chips are kept in the storage shed until the level in the pit is low enough. The level of the wood chips must be kept within a certain range in order to insure that the trucks are able to unload the chips into the pit and the cyclone is able to transport the wood chips into the factory. The deliveries of wood chips are often made before the pit is able to accommodate them. requiring some of the chips to be removed from the pit. creating backups in the delivery schedule. this is done three times a day. the cyclone is unable to pull the chips out of the pit and production must be halted. based on your company’s demand for wood chips.Assessment Recommendation No.

The annual electricity savings.05 / kWh) AES = $4. there will be no implementation cost for this recommendation.746 kw/hp) (4. + $4. ATS.078 / yr. fringe) WPY = weeks per year of plant operation MHS = (15 hr/week) x ($31. can be determined using the following equation.Anticipated Savings The savings from the reduction in man hours. ATS = MHS + AES ATS = $24. can be determined as follows: AES = HPR x AEL x HPC x HPD x DPY x CPH HPR = The horse power rating of the blower AEL = The average electric load on the motor HPC = The horse power conversion into kilo watts HPD = The average hours per day the blower operates DPY = days per year of plant operation CPH = cost of electricity usage AES = (90 hp) (. ATS = $28.690 / yr. MHS = HPW x CPO x WPY HPW = number of hours per week spent moving wood chips CPO = cost per hour of the person moving the chips (incl. AES.) ($0. needed to move the wood chips from the storage shed to the storage pit can be calculated using the following formula. The annual total savings. 104 .65 /hr) x ( 52 weeks/ yr.75) (.078 / yr.690 / yr. MHS. The payback will be immediate.768 / yr.) MHS =$24. Implementation and Simple Payback Since the supplier is heavily dependent on your business and can be persuaded to begin deliveries according to your schedule.5 hr/day) (360 days/yr.

There is a team devoted to processing the materials as they arrive and breaking down the packages so the materials can be measured out and sent to the mixers. The soluble packaging will dissolve once the reactions in the mixers begin to take place.Assessment Recommendation No. Estimated Payback Period = Immediate Existing Practice and Observation Your company presently receives materials from suppliers in standard amounts and divides the materials into useful quantities so the ingredients can be combined to form the right compounds for the process. There are presently three employees working in receiving and a large percentage of their time is spent handling the raw materials. Presently workers are given fifteen minutes to clean themselves off every time they are finished a shift or are taking a scheduled break. allowing the pre-measured packages to be removed from the shipping containers and directly added into the mixers. MHS. The company estimates that approximately two percent of the raw materials are wasted in the combination of processes that are necessary before the materials are placed in the mixers. Savings of several types will result.945/yr. Labor costs will be reduced by eliminating the need to weigh out the materials into proper amounts. This will eliminate the need to measure the raw materials in-house. If the new type of packaging is implemented then the receiving labor requirements could be reduced to two employees. can be determined using the following equation: MHS = (RMH + TSC x NOE) x AHR x DPY 105 . Recommended Action Require the suppliers to package the materials in immediately useful quantities and use soluble packaging. 18 Purchase Materials from Supplier in Customized Packaging Assessment Recommendation Summary Estimated Cost savings = $24. Additional time is spent cleaning the area that is used for measuring and transporting the materials. Spillage of the raw materials which occurs during measurement and transportation to the mixers will be eliminated. Once the materials are separated into the proper amounts they are all combined in the mixers. Anticipated Savings The man hour savings.

Once implemented.445 / yr. The net annual increase in the raw material cost will be: OCI = AMC x (PCP .RMH = reduced man-hours per day TSC = time the employees are given to clean materials off per day NOE = number of employees who work with materials AHR = hourly rate for employees in receiving (including fringe) DPY = number of days per year the operation runs MHS = (8 hrs/day + 0.) ATS = $24.500 / yr. the payback will be immediate.) .450.500 / yr.2%) OCI = $43. Implementation Aside from the cost premium for the customized packaging. ATS. will be: ATS = MHS .000/yr.445/yr. 106 .945 / yr.5 hrs/day x 2 employees) x ($29. OCI. The annual total savings. There will be an annual increase in operating cost.25/hr) x (260 day/yr.($43.OCI ATS = ($68. x (5% .SWM) AMC = The total annual cost for raw materials PCP = The premium percentage paid for packaging SWM = The percentage savings of material wasted OCI = $1. A premium of 5% will need to be paid to the supplier in order to have the materials packaged as requested.) MHS = $68. which must be considered with the cost savings. no implementation costs will be associated with this recommendation. This will be slightly off-set by the 2% reduction in the amount of wasted materials achieved by using the customized packages.

aerated. Therefore. per month.6 years (7 months) Existing Practice and Observation Currently. The total warehouse space needed is 480 sq.50/hr (based on $20.082/yr Estimated Implementation Cost = $100. Anticipated Savings An average of nine gaylords are used per day.23/sq.ft. then delivered to the production facility. At the production facility. The cost of the warehouse is $0. open. The company runs on a 350 day per year work cycle. 19 Install Polystyrene Pellet Storage Silo and Receive Bulk Delivery Discount Assessment Recommendation Summary Estimated Cost Savings = $175. Approximately nine gaylords are used per day. The rent paid every year for this amount of warehouse space is $1. When using nine gaylords per day. Gaylords are temporarily stored in the remote warehouse.ft. Recommended Action The recommended action is to install an adjacent outdoor silo to store the polystyrene pellets. allowing bulk delivery discounts to be obtained. per skid. then loaded into the material hoppers. The gaylords are stacked 3 high and are at 16 sq. ft. and will also reduce the warehousing costs associated with these raw materials. There will only need to be one delivery to the silo every month.000/yr plus 35% for fringes). The company also leases a remote warehouse for storage of raw materials and finished goods. and remove the contents of a gaylord.175 per year in labor costs. It takes approximately twenty minutes to transport. assuming a labor rate of $13. At any given time the company has about 90 gaylords stored in the warehouse.325. 107 . 1050 hours are spent in the handling of the gaylords. the company receives their raw polystyrene pellets in gaylords. the gaylords are transported to the raw materials processing area by means of a forklift. This will greatly reduce the present polystyrene purchase and handling costs. three hours are spent handling the gaylords.Assessment Recommendation No.000 Simple Payback Period = 0. This translates into about $14.

500/yr .05 5 less per lb..418 = $175.500/yr Implementation It is recommended that two 12 ft. Each gaylord is 1000 lbs. Operation cost for the silos will be approximately 10% of the previous labor cost.000/yr is estimated for silo maintenance.418 per year. the cost savings per year (CS) can be estimated as: CS = WS + LC + TC where. A nominal value of $1.000 total.There is also the added benefit of a lower price for the transportation via bulk tanker trucks as opposed to transport with gaylords as a medium.OC = $177. The cost for all parts.082/yr Therefore.. NJ 108 . About 270 gaylords were used per month.. Polystyrenics Div. and at $0. the savings in transportation were $13. high silos be installed.. the total cost savings will pay for the implementation costs in approximately 7 months.000/yr CS = $177.0006 per silo. or $1. Net Cost Savings = CS . This would mean that the company would receive only one delivery of material per month via tanker truck. and installation is $50. WC = Warehouse Cost LC = Labor Cost TC = Transportation Cost CS = $1. A silo this size can hold 100. These operation costs (OC) would be subtracted from the cost savings.325/yr + $14.000 per year. of material.000 lbs.05 cheaper per lb. 5 6 Monsato Corp.175/yr + $162. or $100. It is $0. Universal Dynamics Inc. Therefore. to transport by way of tanker truck.500 per month or $162.$2. diameter by 60 ft.

water. rentals. medical insurance.” we would like to know the fringe costs of labor. etc. receiving. In order to properly judge the savings involved in "downsizing. and shipping. Keep in mind that the employer must match the employees contribution to social security and Medicare and may pay for vacation time. Some parts of overhead vary with production rates and some do not. 109 . clerical employees. inspectors. This is why it is difficult to assign a truly accurate value of burden to each item produced.) . A wide variety of items are included and could be made up of the sum of: • Salaries and wages of foremen. • Purchasing. The selling price of a widget could be broken down into the sum of: • Direct cost of labor and material. crane operators. • Utilities (heat. As rule of thumb we can estimate this to be about 40% if the company can't provide a better number. maintenance • Taxes.g.000 less indirect manufacturing expense. and management) and marketing. retirement plans. technical. and depreciation • Administration(sales. light. e. The most common are burden and overhead. The rate is usually predetermined by the accountants. insurance. It does not follow that if one of two alternative new machines involves $50. a product is charged $3. if the burden rate is 300%. • Factory overhead costs • General administrative and marketing costs • Profit In cost accounting the overhead is frequently everything mentioned above except direct labor and profit.00 for every dollar of direct labor cost. etc.Burden Analysis Introduction Indirect expense of a manufacturing organization is called by various short names. It is best for our purposes to keep the two separate and look for reductions of direct labor charges or indirect burden charges and calculate the savings separately. profit sharing.000 less in direct labor cost than the other it will also involve $150. etc.

Questions to Ask • Is new construction planned? How much and why? • Do you manufacture or store goods in any other building nearby? • Would you be able or want to have a rent paying tenant occupying any portion of your building complex.) AVOID CONSTRUCTION COSTS 110 . it may be economic to scrap junk and use the freed space. AND UTILITY COST • FREE UP SPACE IN BUILDING TO: A.We have obviously been involved in calculating reductions in burden since the inception of the EADC program.) RENT OUT UNUSED SPACE B. • Do you place any value on equipment or facilities which seem to be "junk"? (If not. as first reduction of energy consumption and more recently reduction of waste generation are direct reductions of burden. INSURANCE. or demolish dilapidated facilities) Symptoms/Indicators • Large unused areas on the factory floor • Using two nearby buildings • Empty or unused buildings on the property • Large equipment "graveyards" on the property Related ARs • REDUCE COST OF BUILDING PROPERTY • COMBINE FACILITIES INTO ONE AND ELIMINATE ASSOCIATED COSTS WITH THE BUILDING WHICH HAS BEEN ABANDONED • TEAR DOWN BUILDING ON PROPERTY TO REDUCE TAXES. Part of our increased agenda is to look at those parts of burden which we have hitherto ignored but which might very well constitute the difference between an organization making a profit and one headed for bankruptcy and shut down.

This will relieve some of the burden on the company by eliminating the second building's expenses as well as save in the time that is lost in the commute between the two locations. on average. There is a significant number of personnel that must commute between the two locations on an every day basis. The main location houses the offices.497 Simple Payback Period = 0. ARS = TAR x ARR where. This area is mainly used to store excess inventory and out of date products. 111 . ARS. There is a large portion of the main building that is not being used efficiently.000 ft2 building. Recommended Action The recommended course of action is to create room in the main location and move the operations from the auxiliary building into the main building. will be the reduction in rent that the company will need to pay because of the termination of the 15. The locations are approximately three miles apart and the travel time between them is. Anticipated Benefits The total annual savings of rent.53 year (6 months) Existing Practice and Observation The daily operation of the company are divided into two stages that are performed in two separate manufacturing locations.697/yr. fifteen minutes. warehousing and.Assessment Recommendation No. The auxiliary location is approximately one fourth the size of the main location and is only used for manufacturing. 20 Condense Operation Into One Building Assessment Recommendation Summary Estimated Cost Savings = $123. some of manufacturing. Estimated Implementation Cost = $65. In addition it takes time to have products transported between locations. There is a significant amount of space in the main building that is being under-utilized and is believed to be able to be reorganized and moved to the main storage area.

AMS. CPT = cost per trip for truck TPD = trips per day that are made DPY = days per year that trucks run 112 .25hrs/trip)(7 workers)($24.TAR = total area rented ARR = area rental rate hence the savings from rental is.500 / yr. can be contributed to the elimination of the need to commute between the two locations is estimated as.000 ft 2 x $5.10 /ft2 / yr. ARS = $76.917 / year The annual trucking savings. TTC = time it takes to commute NPC = number of people that have to commute HRC = average hourly rate for the people commuting TYC = number of times a day to make trip DWY = number of days worked per year hence the savings from commuting is. AST = CPT x TPD x DPY where. The annual savings of man hours. AST.65 /hr)(2 trips/day)(312 days/year) AMS = $26. would be from the elimination of trucking costs that are presently necessary to transport the unfinished products from the main location to the second building and back again to the main location. AMS = (0. AMS = TTC x NPC x HRC x TYC x DWY where. ARS = 15.

There will be one hundred man-hours allotted at a rate of $36.917/yr.497 ) / ($123. Payback Period = (implementation cost)/ ATS = ($65.280/yr.53 years ( approx.hence the savings from trucking are.) + ($20. Implementation The Implementation will require moving of all the essentials from the auxiliary building to the main building as well as the reorganization of the main building's storage areas.) Payback Period = 0.500/yr.) AST = $20.) + ($26. There will also be a production down time that needs to be accounted for. The lost production will cost approximately one week of the total annual sales which amounts to $44. The annual total savings.697/yr.00/trip)(1 trip/day)(312 days/ yr. ATS. It should be noted that if the move is scheduled then it might be possible to have the employees take one week of their vacation during this period to avoid additional down time.230.497.97/hr to produce an organization cost of $3697. The total implementation cost for the recommendation will be $65.697/yr. AST = ($65.280 / yr.300. are : ATS = ARS + AMS + AST ATS = ($76. There will be twenty-two pieces of machinery ranging from three tons to two hundred pounds that will need to be moved at a total cost of $17. A moving company will be contracted to move the operations from the auxiliary building to the main building.) ATS = $123. The production will be shut down for one week in order to make the necessary movements from the auxiliary warehouse to the main warehouse. six months) 113 . To reorganize the storage areas the use of in-house personnel will be utilized and will require overtime pay.

There is one building that is no longer of any real use and is at the point were repairs will cost more than the building is worth. for the building that will be demolished can be determined using. The additions were made to the original plant to accommodate expanded production and increase the available storage space. 114 . AST. In demolishing the building the annual taxes and insurance for the building will be eliminated. 131996 Comparative Statistics of Industrail and Office Real Estate Markets. Washington. AST = TPA x TAD where.2 years (26 months) Existing Practice and Observation The company has several buildings that have been constructed since the original factory was established. The building is assessed as a development property and the last reassessment was performed before the building began to deteriorate.600/yr Estimated Implementation = $118. Recommended Action The recommended action is to demolish the 1948 warehouse and move anything of value to either of the adjacent warehouses that are at less than maximum capacity. 21 Demolish Building to Reduce Tax & Insurance Fees Assessment Recommendation Summary Estimated Cost Savings = $54.Assessment Recommendation No.000 Simple Payback Period = 2. The construction quality of the additions is not that of the main building and in recent years some of the additions have been neglected due to their diminishing requirements. Anticipated Savings The annual savings from the elimination of the taxes. D.Society of Industrial and Office Realors.C. TPA = The tax rate per area13 TAD = The total area being demolished Hence the savings from taxes are.

It is estimated that there will 14Based on information obtained from Comparative Statistics of Industrail and Office Real Estate Markets Repair and Remodeling Cost Data 15th Annual Edition.000 ft2 ) AST = $51. this is the amount of insurance that is being paid to keep fire and liability insurance on the building. MA 15Means 115 . It can be determined using. R.21 ft3 . The demolition costs are determined by the volume of the building. ATS = AST + AIS ATS = ( $51. AIS = ( $0. AIS. The demolition also includes the loading and hauling of the rubbish hence. $0.000 ft2 ) AIS = $3.000.) x ( 30. is the savings per year from the demolition of the building and is comprised of the savings from taxes and the savings from insurance.600 / yr ) + ( $3000 / yr ) ATS = $54. the demolition of the building will cost approximately $90. ) x ( 30. AIS = IRA x TAD where. ATS.72 /ft2 /yr.000 per year The annual total savings. IRA = The insurance rate per square foot14 TAD = The total area being demolished Hence the savings from the insurance is.AST = ($1. The disposal of the material consists of dump charges that is determined by the type of material and the volume (cubic yards) being disposed. Any salvage value of material will be incorporated into the cost of the disposal of the material. 15.10 / ft2 /yr. Construction Company.000 ft 3 .600 / yr Implementation The implementation requires demolishing the warehouse. Kingston. and the cost for the type of building (steel framed). 360.S. The annual savings from the insurance. and removal and disposal of the construction materials.600 / yr.

000 ) / ( $54.600/yr ) Payback Period = 2.2 years ( 26 months) 16Based on information obtianed from the Means repair and remodeling cost data 116 .000.000 resulting in an implementation cost of $118. Payback Period = Implementation cost / ATS = ( $118. The total dump charges will be $28.00 per cubic 800 yd3 of material that needs to be dumped at a rate of $35.

The Japanese believe that inventory is one of the greatest forms of waste and make every effort to achieve production systems which don’t require it.Inventory Introduction There are four major types of inventory in industrial facilities: • Raw materials • Purchased components • Work-in-progress • Finished goods Associated with each of the above types of inventoried goods are carrying costs . Once the root cause for excess inventories is identified and addressed. needed to compensate for deficiencies in the manufacturing process such as: • Long set-up times • Frequent machine breakdowns • Lack of predictive/preventive maintenance • Excessive manufacturing lead times (due to process bottle-necks or poor process layout) • Defective raw materials or purchased components The most important reason to consider inventory levels may be for use as an indicator of other. the carrying costs can exceed the profits gained from the eventual sale of the products and a net loss will result. This is in contrast to many traditional American and European production systems which have viewed inventory as a necessary evil. it is easy to recognize that each of the costs will continue to grow in time. if inventoried periods are long enough. the most notable of which are: • Investment costs (time value of money tied up in inventoried goods) • Cost of product damage or spoilage • Cost of product obsolescence • Cost of storage space • Handling & transportation (in-house) Although the magnitudes of each of the above costs may vary from one manufacturer to the next. it is desirable to minimize inventories of all types. 117 . process-related problems which should be investigated further (listed above). In fact. For this reason.

For most of the small. ii) to have zero in-process inventory. Such investigations may lead to 118 . In many cases. Obviously. Zero (or minimized) in-process inventories may be achieved through the use of continuous processing systems. if long set-up times are identified as the cause of large finished-goods inventories in a manufacturing facility and a recommendation is made which will reduce the set-up times significantly. For example. Large-scale manufacturers have the power to dictate just-in-time deliveries by their suppliers and the resources to realistically consider continuous processing methods and just-in-time manufacturing. the ideal inventory situation is: i) to stock only the raw materials and purchased components which are immediately needed. etc. finished goods inventories can be nearly eliminated by using a Just-In-Time production system--scheduling production lots based on the immediately required orders. This may result in the storage of large supplies of finished goods to ensure timely deliveries and customer satisfaction. order lead time. product variety. To be economical. many factors (production volumes.) aside from inventory levels affect the practicality of all three of the above mentioned concepts. the principals and importance of inventory reduction should be recognized and pursued in all practical opportunities. the annual savings could consist of: i) reduced production downtime. Minimal raw material inventories are achieved by requiring material suppliers to provide Just-In-Time deliveries. Even though the size of the manufacturers served by the IAC program may limit the extent to which inventories can be realistically medium-sized manufacturers served through the IAC program. where the product flows continuously from one process to the next until completion. very large raw material volumes are normally required (to minimize transportation costs) and suppliers must be able to reliably deliver all needed materials upon short notice (or raw material needs must be well known in advance of the delivery date). manufacturers served by the IAC program will be on the “receiving end” of just-in-time mandates and will be required to provide just-in-time deliveries to their customers. the reasons for the manufacturer’s perceived need for large inventories should be investigated. supplier scheduling. product type.reducing inventory carrying costs may be shown as a secondary benefit for solving the original problem. seasonality of production. and ii) reduced inventory carrying costs. In terms of minimizing inventory carrying costs. and iii) to only produce finished goods in the amount that they are immediately needed. Finally. Where inventory levels are found to be excessive. this will be an unattainable goal because they may lack the buying power and production volumes necessary to achieve such a system.

purchased components.recommendations to: reduce process bottlenecks. etc. etc. finished goods)? • How much floor space is used for each type of inventory? What is the assigned value (if any) of that floor space ($/ft2/yr)? • If it is determined that there is excess inventory of some type. improve maintenance or establish predictive maintenance procedures. buy new equipment. improving floor layout. 119 . in-process products. improving maintenance practices. Questions to Ask • Average value and quantity of each type of inventory (raw materials. develop standardized procedures. shorten set-up times. why is that excess inventory needed? • If excess inventories are needed because of some process-related inefficiency or problem. what are the present average manufacturing lead times for the products whose inefficient production requires the maintaining of excess inventory? Symptoms/Indicators • Physical observation of large inventories • Long set-up times • Frequent equipment downtime • High defect rates • Lack of a preventive maintenance program Related ARs • MINIMIZE INVENTORY TO REDUCE INVENTORY CARRYING COSTS • MINIMIZE INVENTORY AND OVERPRODUCTION TO REDUCE INVENTORY “SPOILAGE” • REGAIN PARTIAL VALUE OF INVENTORY BY RECYCLING OR SELLING AS SCRAP NOTE: Inventory reductions and the resulting reduced carrying costs should be considered as a secondary benefit achieved by reducing set-up times or machine breakdowns. reducing overproduction. reducing/eliminating process bottlenecks. modify floor layouts to reduce production lead times.

114/yr Total Estimated Continued Cost Savings = $23. Estimated Raw Material Cost Savings = $13. glassware is often produced in lots much larger than the existing order with the hope that the customer will order another shipment of the same product in the future.593 MMBtu Estimated Energy Cost Savings = $5. or has become misplaced due to improper packaging which occurred when batch quantities were over-produced. damaged. damaged. or has been damaged. about one-quarter of the finished goods in the warehouse are out-of-date. It is estimated that your company has the equivalent of one month's production in stock.838 lb.027 Continued Savings: Capital Investment Savings = $2. however.743 Estimated Raw Material Savings = 1.640 Simple Payback Period = 0. these items have accumulated over the years and now occupy a significant amount of warehousing space.Assessment Recommendation No. Interviews with plant management revealed that a significant percentage of the existing inventory is not sellable because it is either out-of-date.4 years (5 months) Existing Practice and Observation During our assessment. all of the products are not sold. it was noticed that a large amount of the existing inventory is very old. 22 Eliminate Old Stock and Modify Inventory Control Assessment Recommendation Summary One-time Savings: Estimated Energy Usage Savings = 1. Boxes containing products as old as 8 years were found. Due to the long production line set-up times.854/yr Cost Benefit from Reclaimed Floor Space = $21.” Much of this stock appears to have been grouped together when the newer inventory system was 120 .284 Total Estimated One-time Cost Savings = $19.459. Often. or otherwise “spoiled.968/yr Estimated Implementation Cost = $9. According to our observations and conversations with facility personnel. Since there has been no established procedure for purging the inventory of out-of-date products.

= out dated stock = good stock AR#22. Figure #1: Outdated Inventory in Newer Warehouse 121 .

18 17 18 National Cleaner Production Database Office of Technology Assessment. but some is also in the newer warehouse (shown in AR#22.200 BTU per pound of glass produced is conserved by using cullet instead of raw materials. We estimate that one-quarter of the existing inventory is out-of-date and could be used as cullet. it should be used as cullet (clear glass) or sold as scrap (colored glass). Once the glassware becomes out-dated. Facing America's Trash: What Next for Municipal Solid Waste 122 . Using cullet to produce glass allows the avoided use of new raw materials. 1989. and instituting new accounting methods for the inventory in the newer warehouse. Anticipated Savings The existing inventory is estimated as the equivalent of one month’s production: Existing Inventory = (Annual Production) / (12) = [(31. Currently. or 2) used to offset a portion of the construction costs for planned expansions.500 lb.308.000 lb. inventory is tagged with customer and date and inventoried in "rows" in the warehouse. 17 In addition. A procedure should be established to identify inventoried products which have become out-dated and have no chance of being sold. The previous actions will result in approximately 9. Recommended Action Reduce inventory by immediately re-stocking or disposing of old. Only inventory to be shipped is pulled from rows. leaving out-of-date inventory in entire rows or especially at the back end of rows. Figure 1).implemented. energy savings will also result--about 1.)/12 = 5.000 ft2 of cleared floor space which should be either: 1) leased to an outside organization to provide a new source of revenue. or otherwise “spoiled” inventory./ton)]/12 = (63. because it requires less heat to melt cullet than it does to make glass from virgin raw materials. damaged.702. resulting in a cost savings on raw material purchases--it requires 10% more virgin raw materials (by weight) to produce a pound of glass as compared to re-melting cullet.851 tons) x (2000 lb.

+ (1. x 0.459.838 lb.459.327.459.284 + $5.027)/(8 years) = $2. or 5. then the estimated annual savings achieved by re-cycling out-of-date glassware would be about ($19.125 lb.743 = $19.15) x ($9.02/MMBtu) Energy Cost Savings = ($3. .284 The energy savings would be: Energy Savings = (1. If one assumes that the existing out-of-date inventories were built up over a period of 8 years. cullet) x (1. .593 MMBtu) x (0.838 lb.963 Total Reduction in Raw Material Cost (RM) = $13.65/MMBtu) + .423 10% soda ash = 1.1 lb. the energy cost savings would be: Energy Cost Savings = (Energy Savings) x (% Gas Heat) x (Cost of Gas) + . resulting in a raw material savings of: (1. x 0.10 x $68.308.The amount of cullet obtained from out-of-date inventory is estimated as one-quarter of the existing stock.500 lb.) x (1200 Btu/lb. . 123 .00/ton x 1 ton/2000 lb = $1. The corresponding cost savings would be: 75% sand = 1. .027 The above savings is thought of as a one-time savings because improved inventory methods will prevent future build-ups of out-of-date inventories.327. + (Energy Savings) x (% Electric) x (Cost of Electricity Usage) = (1.155) Energy Cost Savings = $5.00/ton x 1 ton/2000 lb = $4.75 x $12. .593 MMBtu) x (0. / 4 = 1.) x (10-6 MMBtu/Btu) Energy Savings = 1. cullet) = 1. raw mat’ls/lb.60/ton x 1 ton/2000 lb = $6.327.743 Hence.898 15% lime = 1.593 MMBtu Since about 15% of the heat for the furnaces is electric heat and 85% is from natural gas. .459.588) + ($2. .838 lb.125 lb. .838 lb.85) x ($2.378/yr. . the total one-time cost savings achieved by purging your inventory of out-of-date stock and using it as cullet would be: Total One-time Savings = Raw Material Cost Savings + Energy Cost Savings Total One-time Savings = $13.. x 0.125 lb.15 x $13. .

15/yr) Reclaimed Capital Earnings = $2.750/yr. Using a leasing value of $3.750/yr . the value of the out-of-date products can be viewed as “idle” capital. the space does have tangible value and should be considered as a significant benefit which will result from implementing this recommendation.C.) to perform the functions of the rental venture. Subtracting the annual operating costs for maintaining this space as a warehouse (shown below). this capital would be worth (assuming a rate of return of 15%/yr): Reclaimed Capital Earnings = (Value of Out-of-Date Inventory) x (15%/yr) = (Raw Material Cost Savings + Energy Cost Savings) x (15%/yr) = ($13. According to statistics published by the Society of Industrial and Office Realtors19.530/yr Administrative Costs = 2 hr/wk x 52 wk/yr x ($15.636/yr NOTE: The above costs may not be as high if the space is leased for non-warehousing purposes. 19 1996 Comparative Statistics of Industrial and Office Real Estate Markets. Washington. D. shipping clerk.000 ft2 in size are in the range of $3. If invested elsewhere in the company. purging the out-of-date glassware will make the space available for other uses.284 + $5. p. Operating Cost It is estimated that it would require an additional 10 hours/week of manpower (warehouse person. this space has a revenue producing potential of (9. such as expanded production operations or as leasable space. 124 . Labor = 10 hr/week x 52 weeks/yr x ($15.027) x (0. gross lease prices in your company’s geographical area for warehousing spaces in the range of 5. however.114/yr. It is not necessary to insure other client’s property.15/yr) = ($19.743) x (0. there would probably be a one-time facility renovation cost in that case.$12.75/ft2/yr.While sitting in inventory. the net earnings would be $33.636/yr = $21.000 ft2) x ($3.00/hr + 35% fringe) = $2.75/ft2/yr) = $33.50/ft2/yr and are in moderate shortage.106/yr Total Costs = $12.00/hr + 35% fringe) = $10. In this light.25-$4. etc. Although this space may be viewed as having no value (because it is owned by the company).46. nor would there be any municipal tax consequences.000 to 20.. Society of Industrial and Office Realtors.854/yr The warehousing space used to store out-of-date goods is essentially wasted space at the present time.

An alternative scheme would be to use present personnel. labor = 2 inside people @ ($15.027. if job rules and available personnel allow.4 years (5 months) * NOTE: The above payback calculation neglects the one-time SAVINGS of $19.00/hr + 35%) for 80 hours = $3240 2 outside hires @ $40.640 / ($23. 125 .00/hr for 80 hours = $6400 Total labor = $9.968/yr) = 0.Implementation Costs The cost to implement this recommendation include: 1) clean-up of old inventory 2) modification of your present inventory system to identify out-of-date goods 3) preparing the reclaimed space for rental purposes Cost to clear the area is estimated as using existing personnel and hiring outside help for two weeks.640 Simple Payback* = $9.

126 .

or job shops. and minimizes handling by reducing lead time. frequently repeated. Workstations are arranged to manufacture a "family" of products simply by adding or eliminating steps. Floor layouts will vary depending on the number of different products made. where equipment is consolidated by type. even constructing or leasing new buildings rather than maximizing the existing floor layout. and the work force skilled. usually on conveyors. Equipment is somewhat specialized. particularly if it does not have a direct cost. and orders are usually made to replenish inventory. inventory or labor. One type of small quantity layout is process oriented. This is accomplished by eliminating or reducing wasted motion. Many factories will be a mixture of these three types of layouts. paint booths in another. Typically. lathes are in one area. One example of modifying a floor layout to reduce in-process inventory involved a manufacturer of plastic parts that moved batches of 10. A common practice by plant management over the years has been to expand into all available space. but rather they "grew" into it. or non-value added operations.Floor Layout Introduction Opportunities in modifying floor layout involve saving time. produce small quantities of specialized and customized products. the disadvantage is much moving and handling. 127 . The product is routed through departments in the order of the process required. and the demand is predictable. The facility is laid out in departments. If the product varieties are few. with the products moving through the factory.000 parts at a time to the printing area. space. The other type of small production uses a cell layout. they do not assign any value to wasted space. or changing sizes. the product can be produced in batches. and the workstations and workers located next to the line. This strategy is used when there is a lot of variety in the product and/or the demand is unpredictable. Equipment is designed so that similar products can be made (or assembled) on the same machinery without significant modification to the machines. Low quantity producers. and by the quantity produced. This economizes on the amount of inprocess inventory. High quantity production is generally set up in flow line layout. This is characterized by longer production runs. The final products or assemblies are often made to order. Most manufacturers did not design the layout you see today. since equipment changeover is time consuming. The equipment is general purpose. While this layout allows for flexibility.

This layout modification also eliminated the expense of movement by forklift. It was possible to move the extruder next to the printer. finished goods) • Unnecessary motion • Excessive transportation within the plant • Duplication (two conveyors where one would do) Related ARs • MODIFY EQUIPMENT LAYOUT TO REDUCE MOTION OR TRANSPORTATION • RELOCATE DEPARTMENT (REPAIR SHOP. lease or own the facility (or another)? (cost $/ft2 /yr) • Do you have any plans for expansion? • How do you account for the cost of space? (cost $/ft2 /yr) • How many different products do you make? • What is the lead time of the product/process? Indicators / Symptoms • Excess Inventory (raw material.000 to one. SHIPPING) TO REDUCE TRANSPORTATION TIME • VERTICALLY WAREHOUSE THE FINISHED PRODUCT (OR USE ROBOTICS) TO REDUCE TRANSPORTATION AND/OR MAXIMIZE FLOOR SPACE • INSTALL DISTRIBUTION SYSTEM TO MOVE RAW MATERIALS (OR WASTE) TO REDUCE TIME ASSOCIATED WITH INDIVIDUAL PICK-UP AREAS • DISTRIBUTE UTILITIES (AIR. WATER.Printing took only one minute. ELECTRICITY) TO REDUCE TIME SPENT MOVING PRODUCT OR TOOLS • CLEAR EQUIPMENT GRAVEYARD TO MAKE USEFUL SPACE • CONSOLIDATE PRODUCTION AREA TO CREATE WAREHOUSE SPACE 128 . a manufacturing lead time of 10. reducing the lead time to less than 5 to one. Questions to Ask • Do you rent. in-process.

The warehouse has approximately 26. Washington.75/ft2/yr) = $125.00-$5. Estimated Implementation Cost = $38.400/yr. Society of Industrial and Office Realtors. There is ample room in other warehouses to store the machinery and materials that are still valuable to the company. Anticipated Benefits According to statistics published by the Society of Industrial and Office Realtors20. by management. 20 1996 Comparative Statistics of Industrial and Office Real Estate Markets. It is believed.400 ft2) x ($4.000 Simple Payback Period = 0. Recommended Action Clear warehouse #3 and rent it to an outside organization.75/ft2/yr.3 years (4 months) Existing Practice and Observation Warehouse #3 is presently being used for the storage of out-of-date machinery and unusable material. p. gross lease prices in your company’s geographical area for warehousing spaces in the range of 20. It is important that a large portion of what is presently in the warehouse be permanently disposed of in order to avoid this problem from occurring in another place.000 to 60.C. D. this space has a revenue producing potential of (26. A large portion of the machinery in the warehouse is no longer worth repairing and is considered unsalvageable. Presently it is insured and annual taxes are paid on the original assessed value of the building.000 ft2 in size are in the range of $4. Using a leasing value of $4.400/yr. separating all machinery or materials that are salvageable and moving them to other warehouses. These are costs that your company is absorbing and little to no benefits are received. 129 ..50/ft2/yr and are in moderate shortage.Assessment Recommendation No.46. that more than three-quarters of the objects that are presently being stored in the warehouse are of no future use.400 ft2 of usable space and a private entrance. 23 Clear and Rent an Existing Warehouse Assessment Recommendation Summary Estimated Cost Savings = $125. The rest of the equipment and materials that have no value can be hauled to the dump.

MA. Assuming the worst price to allow for improvements. and dumped at the nearest trash site. This will result in a total disposal cost of $76. The rubbish will have to be loaded.00 per one hundred pounds and mainly depends on the condition and type of metal.50 to $4. resulting in a total removal cost of $38.400 /yr.S. Kingston. Means Construction Company. R. The loading and hauling will cost $46. It is estimated that 500 yd3 of rubbish will need to be removed. the 5 tons of scrap will return: (5 tons) x (2000 lb/ton) x [($2. hauled.50 per yd3 of rubbish while the dump charge will be $30 per yd3 at the trash facility.Implementation Implementation requires the removal of the unusable materials and salvage of the scrap machines.000. The savings for salvaged scrap metal is the amount of money that can be collected from the salvage of the machinery in the warehouse.) Payback Period = 0.000) / ($125. The price that is paid for the metal varies from $2.250.50 per yd3 of rubbish21. 130 .3 years (4 months) 21Means Repair and Remodeling Cost Data 15th Annual Edition.)] = $250 The total implementation costs will be $38.50 /100 lb. The simple payback period can be calculated with the following equation: Payback Period = (Implementation Cost) / ACS = ($38.

spending well over half of their time waiting for something to do.Assessment Recommendation No. The manual machines are only capable of packaging product from one line at a time and are used on the lower volume cup lines.. The automated machines can package cups from two production lines at once and are used where the same product is manufactured on two adjacent lines.). two operators are required. According to management. Both manual and automated packing machines are used to package finished products (cups). This will require four complete production line changeovers and the movement and setup of one automatic packing machine and two manual packers.038 Simple Payback Period = less than one month Existing Practice and Observation Part of the existing floor layout is shown in Figure 1.000/yr Estimated Implementation Cost = $5. aside from the packing machines the only difference between production lines for different products are the molds and the process set-up (timing. one operator is used for each type of packing machine and there are four production shifts per week. . including the process set-up. Since these machines are presently located at least 50 feet apart. placing the two automatic packaging machines side by side. takes approximately 6 hours (on average). where the ordered volume of cups doesn’t merit the use of two simultaneous production lines. Presently. The operators on the two automatic packing machines were observed to be underutilized. etc. 131 . This will allow one operator (instead of two) to monitor both machines. Recommended Action Re-arrange the production equipment as shown in Figure 2. A full product changeover. 24 Re-arrange Equipment Layout to Reduce Labor Costs Assessment Recommendation Summary Estimated Cost Savings = $135.

C.C. Automated Packer Q. One Worker Can Manage Both Machines Finished Goods Molds Molds Unscrambler Unscrambler Q.C. Q. Automated Packer Q.C.C.C. Automated Packer Q. Automated Packer Q. Manual Packer Manual Packer Finished Goods Finished Goods Molds Molds Unscrambler Unscrambler Q. Q.C.C.C. Manual Packer Manual Packer Finished Goods Finished Goods Figure 2: Proposed Process Flow / Floor Layout 132 . >50% idle time Finished Goods Figure 1: Existing Process Flow / Floor Layout Molds Molds Unscrambler Unscrambler Q. Finished Goods Molds Molds Unscrambler Unscrambler Q.C.C.Molds Molds Unscrambler Unscrambler Q. >50% idle time Finished Goods Molds Molds Unscrambler Unscrambler Q.C.

00/hr $512 Hydraulic Crane (25 ton) @ $541/day $541 Equipment Operator (Crane) @ $40. @ $27.) = $1.75/hr $326 Total Implementation Cost $5. 133 .35 fringe) Cost Savings = $135.869 Plant Foreman (5 days) (@ $33.038 / ($135. fringe) = $1.038 Simple Payback = $5.Anticipated Savings The equipment re-arrangement will reduce the labor requirements for the packaging operation by one person per shift for 4 shifts: Cost Savings = (1 operator/shift) x (4 shifts) x ($25.000/yr) = less than one month Note: Labor values taken from Means Repair & Remodeling Cost Data.000/yr/operator) x (1.47/hr) x (6 hr/chg.) x (4 chg.000/yr Implementation Implementation of this recommendation will require: In-house Labor 4 technicians/changeover (@ $19. fringe) 6 hours/changeover 4 changeovers are required (4) x ($19.350 Trades Electrician 16 hr.75/hr incl.47/hr incl.50/hr $440 Moving Equipment / Operators (1 day) Laborers 2 @ $32. 15th Annual Edition.

extruded. 25 Re-arrange Equipment Layout to Reduce Handling Costs Assessment Recommendation Summary Estimated Cost Savings = $4.790/yr Estimated Implementation Cost = $6343 Simple Payback Period = 2 months Existing Practice and Observation The process of manufacturing cereal feeds is divided into two lines each running in the same direction in the facility.056/yr Estimated Additional Income = $44. The product is then pelletized.Assessment Recommendation No. milled. and loaded into bins. cooked with steam and starches. pelletizers drying cooling packaging and shipping move product by forklift mill extruder weigh hoppers silo silos Figure 1: Existing Process Flow / Floor Layout 134 . ground. packaged and moved to shipping. where other ingredients such as minerals and vitamins are added. dried. In the first line. These bins are then moved by forklift truck to the beginning of the second line. mixed. the grains are weighed.

packaging and shipping pelletizers cooling drying mill extruder weigh hoppers silo silos Figure 2: Proposed Process Flow / Floor Layout Anticipated Savings The product is moved 10 times each day (one shift).30 fringe) = $4.896/yr 135 . it is recommended that this move be made during that time. x 10 times/day x 250 days/yr = 208 hrs/yr Labor Saved = (208 hrs/yr) x ($15. little or no inconvenience will be caused by moving the location of the shipping operations. Since your company has a planned shutdown for one week. Since there are loading doors on both ends of the facility. Re-arrangement of the equipment will save: 5 min.790/yr Total = $48. Each movement of the product takes 5 minutes.Recommended Action Re-arrange the production equipment into a continuous line and install a conveyor system to deliver in-process materials from the weigh hoppers to the dryer.056/yr Increased Production =(7200 tons/yr) / (2000 hrs/yr) x 208 hrs/yr = 749 tons/yr Increased Sales = 749 tons/yr x $598/ton = $447. eliminating the need to move the product by fork-lift. x 1 hr/60 min.00/hr) x (1.902/yr @ 10% profit = $44.

@ $28.740 Simple Payback = $70.60/hr $1. @ $27.50/hr $440 Plumber 16 hr.972 Helpers 2 @ 18. 136 . 15th Annual Edition.536 Hydraulic Crane (25 ton) @ $541/day $1.75/hr $978 Total Implementation Cost $70.00/yd 3 = $600 Moving Equipment / Operators Laborers 2 @ $32.65/hr $1.Implementation Implementation of this recommendation will require : Conveyor System (installed) $60.00/yd 3 = $350 Rubbish 20 yd3 @ $30.000 Trades Electrician 16 hr.896/yr = 1.623 Equipment Operator (Crane) @ $40.50/hr fringe) $1.00/hr $1.488 Plant Foreman @ ($25/hr + $7.45 yrs (approx. 17 months) Note: Labor values taken from Means Repair & Remodeling Cost Data.740 / $48.30/hr $453 Laborers (40 hr) Skilled 2 @ $24.300 Trash Removal Construction 10 yd3 @ $35.

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